RFS Complaints form

Title *

Mr

Mrs

Ms

Miss

Other

Attachment (Optional)

×

Drag and drop file here or Browse

Declaration *

I declare to the best of my knowledge and belief that the information and/or documents that I provide are true and correct.

I understand that RFS Fund Administrators (Pty) Ltd may disclose the information contained in this complaint to any party and if so required, to the regulatory authority.

I understand that this authorization remains in force until the matter of this complaint is resolved or until the authorization is withdrawn.

9 - 3 =

Submit

Name

The current uproar regarding the NAMFISA draft regulation on partial compulsory preservation of pension fund capital upon termination of pension fund membership before retirement age, has aroused interest from young and old on an important pension fund matter. When articles are written on pension fund topics, they have been largely ignored by especially the younger population. Like many Namibians from all walks of life, I too tuned in to listen to NAMFISA CEO’s press conference on the subject matter. The overwhelming public outcry and public interest was primarily driven by the video recorded message of Job Amupanda, which enjoyed social media attention. As I read the remarks and comments from the audience that trickled in during the live press conference, I could not help feel at a loss for words but was also disturbed by many of the uncivil and anger filled comments.  

I was reminded of the hugely unpopular utterances ascribed to a former apartheid era South African president, who insinuated that the average person of colour does not plan his life beyond a year. Sadly, the same person would have been responsible for preventing the same people from their right and fair access to education. Today, we all agree that “education is the greatest equaliser”. Founding president, Sam Nuyoma hardly excluded the “fight against ignorance” from his speeches. Yet another former president, Hifikepunye Pohamba stated, “if you think education is expensive, try ignorance”.

The pension fund concept was hugely popular in years shortly after Namibia’s independence. There was a lack of trust in occupational pension fund schemes, and for good reasons. Pension fund membership, their contributions and benefits where still divided along racial lines. The blue-collar workers then had good reasons to be hostile and touchy towards their employers’ pension funds. They were for example subjected to vesting scales, where the employer contribution was paid to them upon termination based on their years of service. Blue-collar workers were also often made to belong to provident funds, compared to their white-collar counterparts who belonged to pension funds. The difference between a pension fund and a provident fund, is that provident funds allow you to access all your funds in full upon retirement. A pension fund on the other hand, only allows you to access one third of your pension fund savings, with the two thirds payable in annuities for the rest of your life…

For a quick history lesson on provident funds, these became popular because of the migrant labour system in South Africa. When South Africa introduced the Pension Funds Act (Act 24 of 1956), they realised that when migrant workers returned to their so-called homelands, some never returned to claim their pension fund pay-outs. As a result, huge amounts of unclaimed monies started to build up in the pension funds. They therefore created provident funds, where the total lump sum was paid to the labourers when they left service. The provident fund concept has remained with us until today and several employer pension funds have been set up as provident funds. However, with increased education, a majority of persons retiring from provident funds today still choose to have two thirds of their retirement capital paid to them over a lifetime instead of withdrawing the full capital. Some of the most astute and very wealthy individuals know too well, that the management of large sums of capital, is best left to institutions like pension funds which make use of professional investment companies to look after and grow the capital. South Africa is currently busy doing away with provident funds, as these are found to increase the reliance on the state by retired persons, after squandering their retirement savings.

The calls made by mostly young people, to withdraw their retirement savings because of the draft law by NAMFISA is thus reminiscent of the pre- and post-apartheid era when lack of trust in the pension fund regime was the order of the day. Many public civil servants and employees of state-owned enterprises withdrew their pension funds’ savings in panic mode, at the dawn of Namibia’s independence. There was huge doubt and fear that the new Namibian government will nationalise or misappropriate their pension fund savings. I have witnessed first-hand, how many former Rössing Uranium employees who were retrenched from 1992 because of the fall in the uranium and other commodity prices, fell into abject poverty after squandering their pension savings. Rössing was known for providing very good pension benefits to its workforce and many with years of long service were surprised with the pay out of millions of N$ upon retrenchment. With little or no financial acumen, these former employees watched helplessly as their savings disappeared into thin air due to frivolous spending. The same scenario played itself out elsewhere where mass retrenchments were experienced, most notably with TCL in Tsumeb in those days.

For a quick lesson on pension systems, the current government’s universal old age grant of N$ 1 350 provides a basic income upon retirement and serves as first pillar of social safety net. You don’t need to have been employed in your lifetime or have been a taxpayer to qualify for this grant. A second pillar would be a pension payable from Social Security Commission. The Social Security Act provides for a compulsory National Pension Fund. However, this fund is not operational yet. If enacted, every employed person may be forced to contribute to such a fund. The third pillar is the occupational pension fund schemes that are currently regulated by NAMFISA. The occupational pension funds in Namibia, have catapulted pillar 3 of our pension systems. The fourth and last pillar, would be the individual retirement savings plans, called retirement annuity funds. Since the creation of Retirement Annuity Funds (RA’s), contributions made to RA’s cannot be withdrawn at all, until at least age 55. The argument being (as also alluded to by the NAMFISA CEO), that retirement fund savings, are for that very purpose, to secure your livelihood during old age and to reduce dependence on the state.

The elephant in the room is financial literacy. The NAMFISA CEO in his press release and response to the many questions on the subject matter inferred that the trustees of pension funds may have failed in their duties or put the responsibility to communicate to the members of pensions funds regarding the draft law squarely on the trustees. I beg to differ and suggest that there is more to what underlies the public outcry. We are on record, and we have as pension fund practitioners gone to great lengths to sensitize those in our spheres of influence, like pension fund trustees and the employers. We have written to the Speaker of Parliament and to various government Ministers and even to NAMFISA itself, requesting them to call for a public consultation and discussion on FIMA, when it was still a Bill in Parliament. Unfortunately, our cries have landed on deaf ears.

The current upheaval could to a large extent have been avoided. What is needed is the urgent and resolute assurance to the members of the public, that the Namibian occupational pension funds are well managed and that they have absolutely no reasons to be concerned. The suggested partial compulsory preservation is in fact in the best interest of the members of pension funds and is in the interest of the country from a savings and investments’ pool point of view. But only when members are adequately educated, will they understand. Currently, there are too many unrelated underlying socio-economic challenges that has instilled fear and anger in the Namibian pension fund member and population in general. Let us educate the pension fund member to plan long-term, and to provide for their dependents in the unfortunate event of them not reaching retirement age.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

This question is quite intricate, particularly in view of the fact that retirement annuity funds may only be offered by insurance companies even though a retirement annuity fund is a pension fund and subject to the Pension Funds Act. Because it is offered by insurance companies as an insurance product, both the Long-term Insurance Act and the Pension Funds Act apply to retirement annuity funds.

The Long-term Insurance Act does not specifically prohibit the transfer of capital accumulated in an individual policy to a pension fund, but this would have to be provided for by the rules/policy of the product. The Act does prohibit the transfer of insurance business or a certain type of insurance business to another entity without approval by the High Court.

The Pension Funds Act similarly does not prohibit the transfer of capital accumulated in an individual pension fund policy to another entity, but this would have to be in terms of the rules of the pension fund. The Pension Funds Act makes provision for transferring business to or from another entity, which does not have to be a pension fund, in terms of section 14. Where individual transfers are allowed in terms of the rules/policy of the product, these are to be considered a benefit paid by the product.

The Income Tax Act defines how benefits are to be taxed and prescribes what type of benefits an approved fund (retirement annuity fund, pension fund, provident fund and preservation fund) may offer. In the case of pension fund benefits, the Act allows for benefits to be transferred tax-free from any approved fund, other than a retirement annuity fund, to any other approved fund including a retirement annuity fund. The definition of preservation fund prohibits a transfer of member’s interest between two preservation funds. The definition of retirement annuity fund allows for members’ interest to be transferred between approved retirement annuity funds. Such a transfer is not a benefit and is not taxed as the only benefit a retirement annuity may pay is a life annuity of which up to one-third may be commuted.

A transfer from a retirement annuity fund prior to retirement, is typically prohibited in terms of the product policy as the insurer is using actuarial calculations to determine premiums, guarantees and benefits that are dependent on fixed pre-determined parameters that cannot be made subject to member discretion. At retirement the policy matures (or terminates) and then typically allows the transfer of a member’s interest to another retirement annuity fund. This would not constitute a benefit and is therefore not subject to taxation.

To accommodate above objective of allowing members of a retirement annuity to transfer their interest to another approved fund upon retirement is thus prevented by the definition of ‘retirement annuity fund’ in the Income Tax Act which means that this Act would have to be amended. To accommodate this objective prior to retirement, the product policy would have to be amended which should be possible for investment linked products without any risk benefits or other guarantees but is not likely to be considered by insurers for any other type of product.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Find RFS in the Namibia Trade Directory, here...

Find Benchmark Retirement Fund in the Namibia Trade Directory, here...

Dear Esteemed Stakeholder

Today, 19 August 2020, RFS Namibia turns 21 years, the day the company was incorporated and opened for business.

Those of you who managed to join us for the company’s 20th anniversary which we celebrated at the Windhoek Golf and Country Club on 3rd October 2019, may still hold some fond memories of the event.

The 20th anniversary event was dedicated to all our clients, with special mention of our early clients who joined us in the first make or break 24-month period. We also dedicated the anniversary to the founders of RFS, especially our Board Chairperson Tilman Friedrich, whom I had the great privilege of succeeding as the company’s Managing Director, 2 years ago. 

Today, Tilman as founder, together with the company’s first employee, Charlotte Drayer, both celebrate 21 years together with the company.

I congratulate them and pay homage to their outstanding dedication and commitment to RFS!

On the occasion of the company’s 21st anniversary, I recall some of the salient promises of the company in the early days, amongst these:

1. To be the number one address in day-to-day fund management,
2. To focus on superior client service and administration capability,
3. To be the best and not the biggest,
4. To be excellent through ownership,
5. To be committed to building the pensions industry in Namibia, etc.

I would like to expand a little on each one of these points, as they are all the more true today than they were 21 years ago.

To be the number one address in day-to-day fund management

This was the encapsulation of a vision that has manifested and continues to endure to this day. The founders wanted every employer to know where and who to go to for their pension fund management needs. Although RFS is realistic and clearly differentiates where it will not be the solution for every employer group, I humbly stand to argue that RFS is today the preferred provider for pension fund management services. 

Focus on superior client service and administration capability

Since its inception, RFS only carries on the business of day-to-day fund management/administration and has not fallen for the temptation of providing other complementary services such as insurance, investment services, actuarial and other specialist consulting services. This is despite several criticism levelled against the model, amongst others that “it has not worked anywhere in the world” and that “it is not sustainable as it is a low margin busines”, etc. Administration is our core strength, and we have set a strategic vision only to carry on business where we can bring to bear this core skill and experience we have built. 

To be the best, not the biggest

As deliberate philosophy, our business model has been centered on providing an enduring, unrivalled level of service. Invariably, such a service will attract a premium and undoubtedly, not many would pay a premium, or so we thought. As it turns out, many pension fund boards attach a premium to immaculate day-to-day fund management services. Where we expected to only achieve a market share of around 25% to 30%, we were glad to realise that we were able to gain market share of around 45% with the same business philosophy. Still, we do not expect to exceed a market share of more than 50% focused on unrivalled service commitments.

Excellence through ownership

RFS is a true Namibian business, by Namibians for Namibians. Moreover, we distinguish ourselves by being an owner-managed business. We believe that the extraordinary dedication and commitment of our most important asset, our staff, comes from their ownership of the business. Staff participate not only in the fortunes of the business, but through the ethos and active participation in the structures that feed into the decision-making bodies of the company. Like bees, we harness the collective power of unique individual strengths, to find solutions to all challenges facing the business.

Committed to building the pensions industry in Namibia

Our most senior staff play an active role in building the industry through active participation at industry meetings and representation at various industry and professional bodies such as the Institute of Chartered Accountants in Namibia (ICAN), the Retirement Funds Institute of Namibia (RFIN), the Financial Planning Institute (FPI), etc. We provide thought leadership on contemporary and regulatory issues in the industry and our opinion pieces such as our newsletters have become the reference point for others in the industry.

Today, as we celebrate 21 years of tremendous success and support, we have enjoyed in the Namibian pension funds’ market, we still hold dear and stay true to the same promises.

As we navigate the dreadful impact of the state of emergency and lockdown due to the novel coronavirus (COVID – 19) since 27 March 2020, we, like any other forward looking business, have been able to tap into the sustainability plans we had made as we moved into the required gear needed to provide the same services as our clients are accustomed to.

To the extent that some of the changes and shifts we have seen in business and human way of doing things are permanent, we have prepared and are making necessary changes and shifts in tandem. We continuously plan to lead the way as your fund administrator. Our premium brand, the Benchmark Retirement Fund will strive to be the model pension fund.

Our promise to our clients and other important stakeholders remains as per the above.

Regards

Marthinuz Fabianus
Managing Director

Kristof Lerch of Retirement Fund Solutions (RFS) has successfully completed his board exams to qualify him for the prestigious Certified Financial Planner®. certification. Principles of finance and financial planning, taxes, insurance, estate planning, investment and securities planning, employee benefits planning and retirement planning are among the skills covered in the certification requirements. He will be one of three Certified Financial Planners at RFS.

As a Financial Intermediary at RFS' new unit, RFS Wealth, Kristof’s role is to advise individuals on the most efficient ways to build and manage their wealth and insure themselves against risks based on their needs and preferences.

Kristof’s best advice to anyone; “Always start with a budget. This is a simple but efficient way to manage expenses effectively and achieve goals. For example, by categorising savings for dream holidays as an expense your chances of saving the desired amount is significantly higher.”

Kristof completed his Bachelor of Accounting at the University of Stellenbosch, an Honours degree in financial analysis and portfolio management at the University of Cape Town and a postgraduate diploma in financial planning at the business school of Stellenbosch.

For all you financial and retirement planning, investments, insurance and estate planning needs, contact Kristof at 061-446 042 or email him at This email address is being protected from spambots. You need JavaScript enabled to view it.

RFS and Benchmark are in office during stage 2, but encourage physical distancing.

Our office hours are from 08h00 - 17h00 Monday to Friday, excluding public holidays.

• We encourage telephone calls and emails for physical distancing.
• Zoom meetings can be arranged on request.
• Please call in advance if visiting, to make an appointment.
• Please wear your mask in our offices, as required in Stage 2.
• Please use sanitizer available in reception.
• Please leave contact details at reception.
• No more that 5 persons can be allowed in reception at any one time.
• Please maintain a physical distance of at least 1,5 metres.

We have prudently been following reports and developments with regard to the Coronavirus (COVID-19) since the early stages, not least to the point of the declaration of a State of Emergency by His Excellency President Hage G. Geingob, on 17 March 2020.

At a time when governments and business leaders across the globe and locally seem to have been overtaken by fear and taking consequent frantic actions, we cannot help but be reminded of the wise words of Warren Buffet who cautions astute investors not to be fearful along with everyone else. Though arguments can be made about drawing any parallels, ours is to be desirous about ensuring not to take any actions that defy the basic facts and information about the virus and concomitant logic and sober judgement.

From an occupational health point of view and for the general health concern for our valued staff and clients and further in response to the national rally to assist in preventing possible spread of the virus, we have taken various steps some of which we will share with you as valued stakeholder.

Safeguarding the health of our staff

Since COVID -19 was declared a global pandemic by the World Health Organisation (WHO) we have been sharing relevant information with our staff to create repeated awareness such as; how the virus is transmitted, the symptomatic nature of disease and various preventative measures etc.

We have particularly taken the following measures regarding personal and office hygiene:

Personal & office hygiene

• Sanitising sprays have been set up at our office entrances and hand sanitisers have been made available within close proximity to all work stations.
• Our staff is prompted to ensure that they thoroughly and regularly wash/or sanitise hands.
• The company has called off all company sponsored social events as well as mass client engagement functions.
• The company will try to keep visits from outside to a minimum.
• Designated surfaces are being cleaned/wiped off regularly.
• Our frontline staff have been provided additional measures of caution in dealing with the limited number of visits to our office

Social distancing

• We have sensitised our staff to observe WHO guidelines regarding proximity to colleagues and staff are requested to observe this in general and with life events such as staff birthdays.
• Staff is advised to consider the wellbeing of others and practice safe behaviour when coughing or sneezing.
• Internal group meetings are called off and discussions facilitated via emails and heads of departments.

Business continuity measures

• We have updated our risk management matrix with new risks identified;
• We have tested and have prepared our disaster management facilities for potential deployment in a severe case scenario (office lock down scenario);
• We have identified critical operations which have to be kept up and running even with an office lock down scenario. Some among these are:
  • Ongoing payments of pensions to retirees and dependent survivors,
  • Payment of insurance premiums to maintain cover and third party obligations, etc.
• We have identified staff to carry out the critical operations and have enabled remote access to our systems;
• We have allowed staff who are particularly vulnerable and some staff with auxiliary functions to work from home via remote access.

In the unfortunate event of any of our staff experiencing symptoms, we advised;

• Staff to stay at home and self-isolate,
• Take necessary medication to boost their immune system,
• Contact their doctor immediately (from home) to explain symptoms and take necessary advice,
• Should a staff member test positive, we require that they act in compliance and in the interest of fellow citizens by adhering to relevant procedures per guidelines provided by Ministry of Health and Social Services until full recovery.

 Access to RFS office and ongoing provision of services

We encourage all our clients and stakeholders not to visit our office, but to contact us by telephone or via email.
However, we will attend to the limited number of persons that may visit our office, whilst observing preventative measures.
All such visitors will be required to provide us with their details in case there is a need to trace a visitor.

We do not believe there are any warranted reasons to consider a closing down of the office at present, but as an owner managed business, we will follow national developments on a daily basis and we are able to take and communicate any decisions in time.

Emergency contact numbers and emails in the event of a potential lock down of office will be communicated at that stage.

Nowadays most of business communication is in digital format. Business probably generally save all digital communication and documentation in digital format and probably on top of that also file hard copy versions of the digital documents. This obviously requires quite an effort in terms of retention and archive management.

Up to now business really had no choice but to maintain a costly dual system for digital and physical retention of all business communication as technological progress in digital communication had left behind the law that still requires physical documentary evidence should any matter be heard in court.

Reprieve however is in sight now since the promulgation of the Electronic Transactions Act, Act no 4 of 2019 in government gazette 7068 of 29 November 2019 that hardly received any attention in the media although it will bring about major changes to the creation, capturing, processing and retention of business documentation and communication.

Another perspective to this new law is that it provides for public electronic information systems such as ITAS to now become a legal obligation for the tax payer.

Here are a few key matters from Act:

General purpose of Act -

• Provides a general framework for the use and recognition of electronic transactions.
• Gives legal effect to electronic transactions and data messages.
• Consumer protection is provided in electronic commerce specifically dealing with suppliers offering goods or services for sale, for hire or for exchange by way of an electronic transaction.
• Provides for the admission of electronic evidence in court.
• Act establishes the Electronic Info Systems Management Advisory Council to advise Minister

S 1 Definitions –

• Types of electronic signature –
  • ‘electronic signature’ – data (incl sound, symbol or process) to identify person and indicate his approval with content of data message or attachment
  • ‘recognised electronic signature’ – advanced electronic signature per s 20(3) (i.e. as per regulation)
• Excluded laws (i.e. prevailing rules regarding physical documentation and signatures remain in place) –
  • Wills Act;
  • Alienation of Land Act;
  • Stamp Duties Act, Bills of Exchange Act;
  • any law requiring borrower (i.e. financial transactions) to sign a contract;

S 16 Legal recognition and effect of data messages and electronic transactions

• All transactions prior to this law remain valid;
• Does not apply to excluded laws.

S 17 Legal recognition of data messages

• Data messages in the form of statements, representation, expression of will or intention, transactions or communication, will have legal effect.
• Persons involved may regulate use of data messages.
• Subject to this law no person may be forced by public body to interact by means of a data message.
• Electronic signatures are now recognized as legally valid, except in terms of the Wills Act and Alienation of Land Act.
• Functionary’s (i.e. regulator or supervisor such as Inland Revenue re ITAS) powers to prescribe form or manner to submit info extends to -
  • Procedure for use of data messages;
  • Format for provision of data;
  • Specific type of electronic signature and manner of attachment;
  • Class of security product to be used;
  • Appropriate control processes and procedures;
  • Manner of storage or retention of information;
  • Reference to ‘writing’ in any law refers to data message;
  • Reference to ‘signature’ in any law refers to electronic signature;
• For electronic evidence to be admitted as an original source: the information must remain complete and unaltered from time of first generation.
• The level of reliability must be assessed in light of the purpose for which it was generated.
• Where law requires -
  • multiple copies to be submitted, one data message capable of reproduction satisfies this;
  • document or info to be sent by mail/similar service, electronic submission satisfies this;
  • info to be retained, electronic retention of data message satisfies this if retained in format it was generated and record enables identification of origin and destination.
• Admissibility and evidential weight of data messages
  • Electronic evidence is admissible and the general rules of evidence apply.
  • The best evidence rule does apply.
  • The court will assess the weight given to the evidence.
  • The court will look at the reliability, integrity and the method used in how the evidence was obtained.
  • Certified copy of print-out of data message is admissible if affidavit provided as required by S 25((4).
  • The data message may be certified by the creator in affidavit that the contents are correct, except in cases of hearsay evidence.
• Formation and validity of contracts
  • Where data messages are used in the formation of a contract, the contract will have legal effect. Info in data messages is also recognised as legally enforceable if message indicates that info is regarded to have been incorporated in the message.
  • Rules for time and place of dispatch and receipt and attribution set out.
  • A contract formed by the interaction of an automated message system and a person, or by the interaction of automated message systems, is not without legal effect, validity or enforceability on the sole ground that no natural person reviewed any of the individual actions carried out by the systems or the resulting contract.
  • Consumer protection

S 34 Information to be provided:
Where a supplier offer goods or services for sale, for hire or for exchange by way of an electronic transaction on the internet, certain minimum information must be provided, else consumer may cancel transaction.

S 35 Cooling-off period:

• Consumer may cancel transaction within 7 days without reason and without penalty, but direct cost for returning goods may be charged. Refund must be paid within 30 days.

S 36 Unsolicited goods, services and communications:

• Minimum info of marketer to be provided.
• Opt-in requirement to be provided for.
• No contract is formed where addressee has failed to respond to such communication.
• Not providing an operational op-out facility is an offence subject to a max find of N$ 500,000 or 2 years imprisonment or both upon conviction.

S 37 Performance

• Supplier must execute within 30 days else consumer may cancel.

S 40 Complaints

• A consumer may lodge a complaint with the Online Consumer Affairs Committee in respect of non-compliance by the supplier with this act.

S 41 to 48 – Accreditation of data security services or products.
S 49 to 57 – Liability for unlawful material.

Download the Government Gazette in which this Act was promulgated, here...

It was announced that RFS has been awarded the 2019 PMR Diamond Arrow award during a gala breakfast on 17 February 2020.

RFS previously won the same coveted prize in every year since 2012.

The Diamond Arrow is awarded to the participant with the highest score of not less than 4.10 out of a maximum of 5 -  RFS scored 4.28 (previous year - 4.26).

Second place was Alexander Forbes, who scored  4.08 (Gold award winner)

Sanlam scooped 3^rd place with an overall score of 4.00 (Silver award winner)

The contract of employment

One principle of the Income Tax Act is that expenses can only be claimed for tax purposes if they were incurred in the production of income (refer section 17(1)(a).

In the case of employees, Inland Revenue will not easily accept any claim for expenses incurred by the employee. An employee can only claim expenses that he is required to incur in terms of his employment contract. In other words the salary you earn is dependent on you incurring certain costs so these costs are incurred in the production of income as contemplated in section 17(1)(a).

If an employer can formulate the employment contract in such a way that a pension contribution in respect of the employee’s bonus is an obligation, the employee should be able to claim that expense. If the decision is left to each employee, the employer should find that it is not possible to formulate it in the contract as an obligation. This does not mean that every employee has to have the same contract of employment. So certain employee categories or certain employees can have a special provision in their contract of employment that others do not have, to make the contribution obligatory.

The fund rules

Most fund rules provide for voluntary contributions by members. We caution to use this clause as the heading is problematic, referring to ‘voluntary’. As pointed out above, the word ‘voluntary’ means it cannot be an obligatory contribution by the employee and would thus not be incurred as a condition of employment for the purpose of producing income from employment.

It is important that the rules of the fund mirror the employee’s employment contract. Thus, if a contribution calculated on a member’s bonus is a condition of employment, it should not be referred to as ‘voluntary contribution’ in the fund’s rules.

The Income Tax Act on fund contributions

The definition of ‘pension fund’ in sub-section (b)(i) requires that the rules of a fund provide that ‘…all annual contributions of a recurrent nature of the fund shall be in accordance with specified scales…’. The definition of ‘provident fund’ lays down the same requirement. Typically, this refers to the contribution percentages at which members contribute on a monthly basis. The definitions do not make any reference to any other contributions.

Section 17 of the IT Act deals with ‘General deductions allowed in determination of taxable income’. Section 17(1)(n)(i), sets out that the employee may deduct ‘…by way of current contributions [which are required to be in accordance with specified scales per definition of ‘pension fund’ and ‘provident fund’] in the year of assessment and directs that ‘…such contribution is a condition of employment…’ The IT Act contains no other specific provision that allows any deduction for contributions to a pension fund, and here we do not refer to a transfer of accumulated contributions to another fund.

Conclusion

As set out above, the principle of the IT Act militates against an employee deducting any expense that he was not required to incur in the production of income [and that can only be achieved through the contract of employment].

This sets out the dilemma of employers or funds wanting to allow staff to make additional contributions to their fund and indicates what route the employer and the fund should take to achieve their goal of having employees contribute to the fund in respect of their bonus.

We would caution employers and funds though not to create an impression towards employees that voluntary contributions are tax deductible, or worse, to offset voluntary contributions from an employee’s salary in determining the taxable income unless you have obtained comfort that Inland Revenue will allow these as a deduction for tax purposes.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Many funds offer a disability income benefit to members, insured with an insurance company. When a fund member becomes disabled, the member would be entitled to an income benefit, paid by the insurance company that would effectively replace a certain percentage of the salary the member used to earn from employment prior to disablement; usually between 60% and 100% of his previous salary. The disabled member would remain a member of the fund. The insurance company usually also takes over the employer contribution towards the fund, in respect of the disabled member. The member will remain obliged to contribute to the fund as if he was still employed, but the contribution would normally be deducted from the income benefit payable by the insurance company and be paid over to the fund. As a member of the fund, the disabled person would also remain entitled to the death benefit the fund offers that is also usually insured with an insurance company.

The employer of this member would usually terminate the employment of the employee upon his disablement. As pointed out, the employer’s contributions would be taken over by the insurance company so the employer also no longer has any obligation towards the former employee in this regard. Where the rules of the fund (and the Income Tax Act) requires that membership of the fund must be a condition of employment, the termination of employment as the result of disablement, would then imply that the disabled member cannot remain a member of the fund unless the rules specifically provide that a disabled member will remain a member of the fund notwithstanding the fact that he is no longer an employee of the employer, and most rules do provide for this. The relationship of the disabled member with the employer would thus be severed and the disabled member would now be a member of the fund is his own capacity as provided for in the rules. Usually rules would link the conditions of the disabled member’s continued membership to the terms and conditions set out in the insurance policy under which the disability income benefit is being paid to the disabled member.

Fund rules would normally describe under what circumstances a member becomes entitled to a benefit, typically, termination of employment, death or retirement; all of these reasons being linked to the employee’s employment. For employed members, these would cover all possible reasons for termination of membership, other than disablement elaborated above. The retirement rule would normally provide for early, normal or late retirement where early retirement is normally at the discretion of the employee, normal retirement manifests the obligation of the employee to retire and late retirement is at the discretion of the employer.

As pointed out above, the terms and conditions applicable to a disabled member who is no longer employed are usually linked to the terms and conditions of the policy providing the benefit. Clearly in the absence of an employment relationship, there can be no termination of employment due to resignation, dismissal or retrenchment, yet the benefit has to cease at some stage. Rationally this is either death or normal retirement age and this is usually also what the disability insurance policies provide for. Where the rules of a fund link the disability benefit to the insurance policy, fund membership of the disabled member can only terminate as provided in the disability insurance policy. Where the rules do not explicitly link the disability benefit to the disability insurance policy we would argue that the only reason for termination of fund membership remains the termination of payment of the disability benefit by the insurance company, which would be upon the earlier of recovery, death or reaching normal retirement age.

We are regularly confronted with requests by disabled members receiving a disability income benefit, to terminate their fund membership for whatever reason but more often than not the member being after the ‘pot-of-gold’ he has in the pension fund. This would not be in the interests of the disabled fund member or his dependants who will lose the continued contribution by the insurance company, the benefit payable in the event of the death of the disabled member and any investment returns on the money that will continue to be invested on behalf of the disabled member, until the earliest of recovery, death or retirement.

Besides the fact that the early retirement of a disabled member will seriously prejudice the disabled member, section 37A of the Pension Funds Act explicitly prohibits the member to sacrifice his benefits in stating that “…no benefit provided for in the rules of a registered fund (including an annuity purchased or to be purchased by the said fund from an insurer for a member), or right to such benefit, or right in respect of contributions made by or on behalf of a member, shall notwithstanding anything to the contrary contained in the rules of such a fund, be capable of being reduced, transferred or otherwise ceded, or of being pledged or hypothecated, or be liable to be attached or subjected to any form of execution under a judgment or order of a court of law, …, and in the event of the member or beneficiary concerned attempting to transfer or otherwise cede, or to pledge or hypothecate such benefit or right, the fund concerned may withhold or suspend payment thereof…”

The disabled member thus has a statutory right to the benefits offered by the rules to a disabled member which right cannot be disposed of by the disabled member or even allowed to be disposed of by the fund and these rights can be sued for by the disabled member and/ or his dependants at any time in future. Prescription will never apply to this right. Trustees are advised to ignore any request by a disabled member to be allowed to take an early retirement benefit.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

To mark our 20th anniversary we have published the first Benchtest Review which you can download for free.

Section 37C prescribes the manner in which death benefits are to be disposed of by the trustees of a fund. In short, dependants are to be considered first, if there are any. Next to be considered are nominees, if there are any.

If the deceased fund member did not leave any dependants but nominated persons to be awarded a portion of the death benefit as specified in writing to the fund, the benefit or such portion of the benefit shall be paid to such nominee: Provided that where the aggregate amount of the debts in the estate of the member exceeds the aggregate amount of the assets in his estate, so much of the benefit as is equal to the difference between such aggregate amount of debts and such aggregate amount of assets shall be paid into the estate.

If there are neither dependants nor nominees, the benefit is to be paid into the estate of the nominee for disposition to the heirs in accordance with the testament of the deceased. If the deceased did not leave a testament the benefit is to be paid into the Guardians Fund to be disposed of in terms of the Intestate Succession Ordinance 1946.

Therefore, except for the circumstances set out in section37C, as presented above, the law of intestate succession bears no relevance to the distribution of a death benefit of a pension fund member. Only once a benefit is paid into the estate or into the Guardians fund, as prescribed by section 37C, the Master of the High Court will oversee that the benefit is paid to the heirs in terms of the deceased member’s testament or is disposed of in terms of the Intestate Succession Ordinance in the event of the member not having left a testament.

Trustees of a fund therefore do not need to concern themselves with the fate of a death benefit once it has been paid into the estate or into the Guardians Fund as prescribed by section 37C of the Pension Funds Act. A different set of rules will apply from there on.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Leading Namibian pension fund administrator Retirement Fund Solutions (RFS) recently celebrated its 20^th anniversary. Founded in 1999 as a high-quality niche administrator, the company has grown to become the largest private pension fund administrator, with N$22 billion in assets administered on behalf of private funds and their members.

Pictured above, founder and Chairman Tilman Friedrich (left) and Managing Director Marthinuz Fabianus (right), at the 20^th anniversary celebration.

Talking about the company’s status on its 20^th anniversary, Managing Director Marthinuz Fabianus said it manages 36,000 active members, and pays monthly pensions to some 3500 pensioners. This involves some 218 unrelated employer groups, of which 150 are in the company’s flagship Benchmark Retirement umbrella fund and 47 local authorities are part of the Retirement Fund for Local Authorities which the company also administers.

The company founded the umbrella fund, Benchmark Retirement Fund in 2000, and the fund now caters for individuals, small to medium entities and even large employer groups who now find regulatory requirements too demanding. Benchmark boasts N$3 billion in assets under management for its members.

Fabianus lauded the support the company has enjoyed from both private and public sector as well as private individuals since inception to where the company is now a significant player in the local pension fund market.

Fabianus credited the company’s success to “the dedicated staff that serve the company’s clients with exceptional commitment and motivation”.

Talking at the same event, founder and Chairman Tilman Friedrich says that its success is attributable to dedicated and highly skilled staff, and a no-compromise approach to quality of administration.

On the topic of staff dedication, Friedrich recognised Charlotte Drayer, who joined the company shortly after its opening for no remuneration, on the basis of her conviction that the company would succeed. Drayer went on to become a director of the company.

On the topic of remaining focused on fund administration, Friedrich noted that an early investor that held shares in RFS criticized this approach and exited as it did not believe that the business model of Retirement Fund Solutions was sustainable.

The 20^th anniversary of RFS, Friedrich said, is proof that the vision of the company was on the mark.

Friedrich went on to state that the company’s business model is widely regarded as unique, and its administration is henceforth acknowledged to be exceptional.

Axel Theissen of the Cymot Pension Fund and Martino Olivier of the Universities Retirement Fund, both long-standing customers of RFS, paid tribute to the company’s enduring commitment and expertise. The company provides services to the largest number of state owned entities and the majority of Namibian banking institutions, as well as a number of blue chip Namibian companies and  non-governmental institutions.

RFS has sponsored generous financial rewards for NAMCOL's top performing students for the 7th consecutive year running. This year, the amount awarded was N$16,000.

Above: FLTR at the Award Ceremony: Mrs. Rosalia Sibiya (Advisor to Hon. Laura McLeod-Katjirua, Governor of the Khomas Region), Mr Herold Murangi (Director of NAMCOL), Ms Mariana Awene (RFS Client Manager) and Mr Jan Nitschke from NAMCOL.

Above: Mariana Awene with two of the recipients.

Above: Mariana Awene talks about the commitment of RFS to education.

Above: Louis Theron (L) and Gunter Pfeifer (R) with the 2019 PMR Diamond Arrow for the Pensions / Retirement Fund Administrators category.

Retirement Fund Solutions (RFS) has been awarded the 2019 PMR Diamond Arrow award. This is the 4th Diamond Arrow awarded to RFS for achieving 1st place in the category ‘Pension / Retirement Fund Administrators’ in as many times participated.

Marthinuz Fabianus, Managing Director of RFS, dedicated the award to the tireless commitment and dedication of RFS staff that often go beyond the call of duty. He remarked that the Diamond Arrow did not come easily as RFS squared off against established multinationals. He thanked RFS clients for consistent support and loyalty over the past 19 years RFS that has been in business.

The Diamond Arrow is awarded to the participant with the highest score of not less than 4.10/5. RFS scored 4.26/5.

Second place Gold Arrow went to Old Mutual with a score of 4.20/5. Sanlam took the Silver Arrow with a score of 4.15/5. Alexander Forbes was fourth in this category with a score of 4.06/5.

To say that a pension must be managed strictly in accordance with its rules is stating the obvious. It is probably sometimes not obvious to trustees though, that they cannot make decisions that are not provided for by the rules, either explicitly in terms of specific provisions, or implicitly in terms of general provisions. If neither exists in the rules, trustees would act ultra vires and may be held accountable for any loss the fund or its members may suffer as the result of such action, even in their personal capacity.

But what do trustees stand to do where the rules provide for alternative benefits without giving guidance under what conditions to employ the one as opposed to the other alternative? An example we have recently had to deal with is where the rules in the event of death of the member or pensioner, provide for a member’s or a pensioner’s remaining capital to be paid as a lump sum in terms of Section 37C of the Pension Funds Act, alternatively in the form of a pension to a dependant or dependants of the member or pensioner. No indication is given on any particular priority or preference.

In such instance the rules provide discretion and it is the trustees that need to apply this discretion being the party charged with managing the affairs of the fund. This means that they have to apply their mind before they take a decision they believe to be in the best interest of the beneficiary/ies. To be able to apply their mind with due care, they need to get as much information as possible on dependants and nominated beneficiaries as  they would do in the event of being required to decide on the distribution of a lump sum death benefit.

Consulting the dependants and beneficiaries becomes an essential element of the information the trustees need to obtain. When they come to the point of deciding whether to pay the capital in a lump sum or as an income to a beneficiary/ies, Section 37C must first be ignored and must be ‘replaced’ with their discretion that will lead to a rational and defensible decision. However, if the decision is taken that payment as a lump sum is in the best interests of the beneficiary/ies, the requirements of Section 37C now have to be observed.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Whilst the dismissal of an employee may appear to be purely a matter of following the correct procedures as envisaged in the Labour Act, the implications for the employer may be a lot more profound than just a possible reinstatement.

Consider the scenario of dismissing an employee. HR will now complete a withdrawal form that will be forwarded to the pension fund administrator. As far as the Fund is concerned its rules would typically determine that membership of the Fund terminates upon termination of employment by the employer. The implication for the administrator is that a termination benefit must be paid. Whether or not the employer was within its rights to initiate the termination of this person’s membership of the Fund is not within the administrator’s knowledge. The fund administrator will therefor terminate the employee’s membership of the fund and will pay out the benefit due to the employee in terms of the fund’s rules.

The employee then challenges his dismissal. In the meantime and before the matter is concluded, the employee passes away or becomes disabled. The court then finds the dismissal to have been unfair and orders the reinstatement of the employee. Where does this now leave the employer as far as the fund’s death or disability benefit is concerned, to which the employee should now be entitled in the light of his reinstatement?

The dismissal of an employee can clearly create a dilemma for the employer given that the employee can challenge such dismissal, while the fund is obliged to terminate fund membership once a notification of termination of service has been issued by the employer.

To avoid the risk of being held liable to make good the loss of the benefit that would have been due to the employee from his fund upon death or disability, the employer should rather consider suspending contributions to the fund in case of a dismissal where there is any possibility of such dismissal being challenged by the employee. The employer would thus not contribute to the fund in respect of the employee but the fund would maintain death and disability benefits. The cost of keeping cover in force will be a fraction of the cost of making good the loss of the benefit to the employee.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Dear reader, letting go is sometimes a very hard thing to do. However letting go is necessary to moving on.

• We need to let go our egos so that we can empathise with others.
• We need to let go our biases, the cataracts that blur us seeing other realities.
• We need to let go our past success so that we can build future success.
• We need to let go our strategies, in order to be flexible, adaptive and open.
• We need to let go what we know, in order to learn what it is we need to know.
• We need to let go our grievances and grudges, so we can be free.
• We need to let go our sense of normal, so we can discover other ‘normals’.
• We need to let go our insecurities so that we can love and be loved.

(From an article in TomorrowToday)

In this vein, the time has come for me to let go, to step down as managing director of Retirement Fund Solutions in order to make way for a younger generation to lead this great company to greater heights, as I have intimated for quite some time. Deputy managing director Marthinuz Fabianus will thus be taking over the baton as from 1 July 2018.

Marthinuz and I have come a very long way, in fact only surpassed by two people that are still working for RFS today, namely Charlotte Drayer and Frieda Venter, who have accompanied me on my career for longer than he did. He joined UPA in 1994, fresh from school as a filing and delivery clerk. I saw Marthinuz growing up and maturing over the past 24 years. He always had ambitions, but he was always realistic and humble enough to appreciate that one cannot fly before one can walk. Seemingly menial tasks he approached with conviction and dedication and with the eyes firmly focused on a career path that required of him to progress step by step.

Marthinuz always was content with the progress he made at his own pace and never succumbed to the temptation of short-term gain through job-hopping as so many of our compatriots do. He studied and built his knowledge and expertise in the pensions field step by step, year by year over the past 24 years and without doubt he is today widely recognised as a pensions expert. He has proven his skills in people management when he was assigned responsibility for our fund administration team and he built an excellent reputation over the years he has been serving many of our largest clients as client manager. He has shown that he is able to build bridges between cultures and to manage diversity. The fact that he has been with RFS over 24 years testifies that his personal any the company’s philosophy are very much aligned.

As from Monday 2 July Marthinuz is entrusted with the well-being and the destiny of RFS and its staff. I sincerely wish him all strength, empathy, perseverance, faith and wisdom to lead this wonderful company from strength to strength, for the benefit of its staff and in the interests of its clients and the Namibian economy! May he be blessed with health and good luck at all times!

My position will change to that of technical adviser to our managing director specifically and to the company in general on a full-time basis for as long as I can still add value to our organisation and our stakeholders. While Marthinuz has already taken over quite a few responsibilities from me, I will hand over the remaining management responsibilities over the next couple of months with the objective that no disturbance or disruption will be caused to staff, clients and our service levels. I will also continue to act as chairman of the board of directors of RFS.

To all our clients and our staff I would like to express my sincere appreciation for your trust and confidence over all the years you have supported RFS and I had the privilege to serve you. I trust you will bestow upon Marthinuz the same trust, confidence and support. I will of course still be around every day as before and I am sure our clients and most of our staff will not actually notice any difference.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

When a participating employer in an umbrella fund is transferred to another fund by means of a ‘section 14 transfer’, the question arises whether the unclaimed benefits must also be transferred. Where they are not transferred one obviously cannot state that all assets and liabilities were transferred. Does this mean that the transfer contravenes the provisions of section 14 of the Pension Funds Act?

Firstly, a participating employer in an umbrella fund is not a fund as contemplated in the Pension Funds Act. Where the employer is transferred it will in the first instance be the active members that will have to be transferred as their contributions to the transferor fund will discontinue and will henceforth be made to the transferee fund. Section 14 states “…(2) Whenever a scheme for any transaction referred to in subsection (1) has come into force in accordance with the provisions of this section, the relevant assets and liabilities of the bodies so amalgamated shall respectively vest in and become binding upon the resultant body, or as the case may be, the relevant assets and liabilities of the body transferring its assets and liabilities or any portion thereof shall respectively vest in and become binding upon the body to which they are to be transferred.”

Clearly, upon the approval of a transfer or amalgamation i.t.o. section 14 by NAMFISA, only the relevant assets and liabilities as per the supporting certificate of the actuaries and principal officers will be transferred or amalgamated. In a similar fashion if a participating employer or an operation of large group is bought out by another person, only active members would normally be transferred while unpaid benefits, unclaimed benefits and pensioners would remain in the fund of the seller. Whether or not this is what should happen depends on what the rules state. Are unpaid and unclaimed benefits and pensioners tied to the employer or to the fund? If they are tied to the employer they should be transferred to the new fund as well. This comment of course only applies to transfers of portions of a fund (participating employer or an operation of a participating employer) to another fund. If a fund is transferred/ amalgamated with another fund ‘lock, stock and barrel’, then all assets and liabilities must be transferred else it will mean that the transferor fund cannot be deregistered until all remaining liabilities have been disposed of. This would still not be in contravention of section 14 though.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

To answer this question, one needs to differentiate between a person with previous experience as a trustee and a novice. Members are required to be represented on a board of trustees in terms of the Income Tax Act and a standard requirement of NAMFISA. Member trustees are elected by the members of the fund. Often these trustees do not have any background to the management of an institution or to financial matters which is largely what pension fund business is all about. Being a financial institution established to promote government’s socio-economic goals and objectives it enjoys unique tax incentives but is at the same time also subject to very stringent legal and regulatory requirements. A significant part of the business of a pension fund is therefore about compliance, i.e. meeting the requirements of the law and this places onerous demands on a trustee.

If a novice joins a board of trustees, in our experience, it takes at least a year before the person starts to participate in the discussions at trustee meetings and this presupposes that the person would have gained some confidence through a proper induction and formal trustee training. As the person starts to participate in the discussions her/she starts to apply his/her mind to the issues at hand and starts to understand the business of a pension fund ever more and better. It would normally then only be after 2 to 3 years of serving on a board that a person starts to add value to the proceedings at board meetings.

Effectively a novice will require a learning period of around 3 years. Any term of office of less than 5 years would make the process of training up a novice as a trustee very costly and inefficient. We would therefore propagate that rules should set the term of office of a trustee at 5 years.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

The scenario here is that an employer has acquired another company.  It was agreed with the acquired company that all new employees will particpate in the buyer’s pension fund while all existing staff as at date of acquisition will remain members of the ‘seller’s’ pension fund. The question arising is whether such an arrrangment is permissible.

To answer this question, there are 4 matters that need to be considered, namely the the Pension Funds Act, the Income Tax Act, the rules of the fund and the reassurance arrangement.

1. The Pension Funds Act – The Pension Funds Act does not provide any guidance on such a scenario other than requiring that a fund has a set of rules and complies with its rules. One would thus have to refer to the rules to determine whether the arrangement is consistent with the rules and by implication also with the Pension Funds Act.
2. The rules of the fund – Most pension fund rules would require that the employer and the fund must approve the participation of an employer. The acquired company should thus submit an application to the fund to participate in the fund. Most rules would have a definition of ‘eligible employee’. The implication of the definition is that once an employee falls into the defintion, the employee is obliged to participate and as long at he/ she does not fall into the definition the employee cannot participate. This definition may allow for different categories of employees; normally these are ‘as defined by the employer’, or may allow the fund to waive the participation requirement for a particular group of employees. In this scenario one category can be those members of the acquired company on date of acquisition and the second category could be all employees joining the acquired company after date of acquisition. This would meet the definition of eligible employee, and would thus be in compliance with the rules.
3. The Income Tax Act – This Act requires compulsory membership of all class or classes of persons specified in the person’s conditions of employment and would then support any such provision in the rules of the fund as referred to in 2. The requirement is that the two employee categories of the acquired company have been clearly defined by the employer and that membership of the two funds is strictly observed on the basis of the two categories.
4. The reassurance arrangement – The reassurance arrangement is typically based on what the rules provide and would typically only prohibit voluntary participation to avoid anti-selection, which the insurer’s risk ratings pre-suppose for any compulsory group scheme. If it were only a question of different classes participating in different funds, it is still compulsory participation per defined class of membership.

Conclusion:

The crux of the matter is the definition of ‘eligible employee’ and one needs to check whether this provides for the employer defining different membership categories or the rules providing for the trustees waiving the eligibility requirements for a particular group of employees. If so the above arrangment is permissble. To cover the fund, it is important that the admission of the acquired company on those terms is confirmed by way of a resolution. From the acquiring employer’s side it is advisable that the participation of the acquired company on the basis of the above arrangement is also confirmed by way of a resolution and that the relevant employees’ conditions of employment clearly define in which fund the employee participates.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

As administrator of a number of pensioner payrolls, RFS is deemed by Inland Revenue to be the employer of the pensioner. For income tax purposes pensioners are treated in the same manner as employees. The employer (RFS) is required to determine the monthly income tax to be deducted, from the PAYE 10 tables issued by Inland Revenue from time to time. These tables are based on the official tax scales that require progressively higher tax percentages to be applied as the taxable income increases from one level to the next. These tables assume that the only income of the pensioner is the pension/ annuity paid by RFS to the pensioner. Very often however, pensioners earn other income that will be added to the total pensions paid by RFS, when the pensioner needs to submit his/her tax return for a tax year. RFS as pension payroll administrator is obliged by the Income Tax Act, to only take into account the pension it pays and no other income.

In the Benchtest 2017-09 newsletter we pointed out that the social old age pension of N$ 1,200 per month is taxable. Since RFS does not take this into account, a pensioner paying tax at the minimum tax rate of 18% will be required to pay up an additional amount of N$ 2,800 on or before 28 February of any year, if he/she wants to avoid paying interest and penalties. At the maximum tax rate of 37% this surprise amounts to an additional tax of N$ 5,800.

Other income that may be the reason for such a ‘tax surprise’ at the end of a tax year is any business income, rental income or any interest earned that is not subject to withholding tax. Fortunately interest earned that is subject to withholding tax can be ignored as the 10% withholding tax is a final tax.

Other income in the form of ‘remuneration’ as defined in the Income Tax Act, e.g. trustee fees or directors’ fees, is subject to PAYE. However the person paying this ‘remuneration’ is also obliged to only deduct PAYE as if this was the pensioner’s only income. When this income is added to the pension the pensioner’s total income might be in a higher tax bracket and thus means that both RFS and the other person have deducted too little tax resulting in a ‘tax surprise’ for the pensioner at tax year end.

Any pensioner who earns other taxable income may request RFS in writing to deduct PAYE at a higher rate in order to avoid a ‘tax surprise’ at the end of the tax year.

Should the converse apply to a pensioner, i.e. a pensioner incurs losses in respect of another business run by him/her, RFS will require a tax directive from Inland Revenue instructing it to deduct at a lower rate than the PAYE 10 table prescribes or to deduct no tax at all.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

The fact that SSC may not have deducted PAYE from any benefits paid to you, does not necessarily mean that they are not taxable. Whether or not a person is required to determine and withhold PAYE from any amounts it pays to another person is set out in Schedule 2 of the Income Tax Act. Schedule 2 of the Income Tax Act only requires a person to determine and withhold PAYE, if the amounts it pays meet the definition of ‘remuneration’ in the schedule.

In respect of social benefits, this schedule specifically excludes from this definition ‘any pension or allowance under the Social Pensions Act, 1973… or any grant or contribution under the provisions of section 89 of the Children’s Act, 1960…’. Evidently this does not refer to the Social Security Act, Act 34 of 1994.

Remuneration as per the definition ‘means any amount of income which is paid or is payable by any person by way of any salary, leave pay, allowance, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend…’ Without going into too much detail, in our opinion all these terms relate to an employer – employee relationship. There is clearly no employer – employee relationship between a recipient of maternity or sick leave benefits and the SSC.

But hold it, the definition now specifically includes any amount received or accrued by way of annuity, certain other amounts arising out of employment and certain amounts arising from membership of approved funds. Considering that amounts from employment are the responsibility of the employer while amounts from an approved fund are the responsibility of the fund administrator, the only remaining possible obligation for SSC to withhold PAYE can arise if the benefits would fall under the definition of ‘annuity’. The term ‘annuity’ is not defined in the Income Tax Act so one needs to refer to the common understanding of this term. The Oxford English dictionary defines an annuity as ‘fixed sum of money paid to somebody yearly, usually for the remaining part of his/her lifetime…’ Inland Revenue in fact has established the principle that an annuity requires a minimum payment period of 5 years. It is clear to me that neither any maternity –, nor any sick leave benefit falls into this definition as they are only paid for a limited period of less than 5 years. I therefore conclude that SSC is under no obligation to withhold PAYE.

As pointed out above this does not necessarily mean that these benefits meet the definition of ‘gross income’ and are therefore taxable. Looking at this definition it broadly includes anything derived from a source in Namibia, but specifically excludes amounts of a capital nature, and then goes on to include a whole list of specific amounts.

Conclusion

In short, I do not find any clause specifically including the SSC benefits. It then remains to consider whether it falls under the broad inclusions or the exclusion of amounts of a capital nature. The list of specific inclusions appears to implicitly exclude the SSC benefits as they do not derive from anything otherwise considered to constitute gross income. Generally receipts will only constitute gross income if they are the consequence of a deliberate effort to generate an income or to make a profit.

The flip side of this argument would be that the contributions by the employee towards these benefits are not made in the production of income and should thus not be tax deductible as required by section 17 of the Act. There is also no other specific deduction for these contributions in the Income Tax Act.
Having studied the SSC Act, it does not contain any overriding clause impacting the prescriptions of the Income Tax Act.

I thus do not believe SSC benefits fall into this category and am hence of the opinion that they do not constitute gross income and are not taxable.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

In last month’s Benchtest newsletter we cited expert opinion on whether a lump sum death benefit can or must be paid within 12 months of the death of the pension fund member.

The article clarifies that a debt becomes due when the duty to pay arises. Where a debtor’s liability is dependent upon the performance of certain conditions, the debtor will not be in mora until a duty to pay arises, e.g. all dependants of a deceased needed to be and then have been determined.

Mora can arise where the debtor’s need is urgent and the creditor’s delay is unreasonable. The common belief that a fund’s duty to pay is contingent upon the expiry of the 12 month period referred to in Section 37c is not correct. The duty to pay is not dependent on this but rather whether the trustees are satisfied that they have investigated and considered with due diligence and are in a position to make a decision.

Although onerous, most trustees are familiar with the process they need to follow when faced with the disposition of a benefit due in respect of a deceased member. Section 37C (2) then stipulates that “…the payment…shall be deemed to include a payment made by the fund to a trustee contemplated in the Trustee Moneys Protection Act…for the benefit of a dependant…”

Section 37C thus makes no prescription as to the manner of payment but only explicitly allows for payment to a trust. As stated above the obligation of a fund making payment arises upon the fund being ‘in mora’ towards a dependant. This means that either all dependants have been identified or a dependant’s needs are urgent and a delay would be unreasonable.

In practice trustees often believe that they have identified all dependants, but cannot be certain. This is particularly relevant in case of a deceased male member where one can mostly not be certain. In such cases the trustees have to be cognisant that dependants can still appear to lay claim on sharing in a benefit until expiry of the 12 month period following date of death of the member.

In such a case the trustees need to assess the needs of those dependants they have identified. Should there be an urgent need, mora arises and the fund is obliged to pay. Since the quantum of the benefit due to the dependant in urgent need can only be determined upon expiry of the 12 month period following date of death of the member, in my opinion the only manner in which the trustees can reasonably meet their obligation is to make one or more interim payments to the dependants of a portion of the full benefit that would be allocated to him or her in the event of no other dependants being identified subsequently and up to expiry of the 12 month period.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Over a number of years, practices have evolved in the retirement fund industry, that are inconsistent with the Income Tax Act.  One example is that pension funds replaced dependants pensions upon the death of a member in service with lump sum benefits. Another example is that some provident fund rules provide for a member opting to receive a pension upon retirement instead of a lump sum.

The different types of tax approved retirement fund (i.e. pension-, provident-, preservation- and retirement annuity fund) are a creation of the Income Tax Act. The Pension Funds Act does not recognise these differences. Whether or not a provident fund can offer pensions or annuities or whether or not a pension fund can offer lump sums would have to be determined by reference to the Income Tax Act. Referring to the definitions of pension fund and provident fund in the Income Tax Act, one will note that these definitions are mutually exclusive. A provident fund is thus a fund other than a pension fund and vise-versa.

With the practice note 5 of 2003 debacle, it should have become clear to everyone that Inland Revenue insists that the definition of pension fund does not allow for the payment of more than 49% of a benefit due to dependants in the form of a lump sum, but has to rather provide annuities. The definition of provident fund in contrast has no provision for paying annuities. By implication a provident fund cannot provide annuities else it would become tax approved as a pension fund.

Although it is possible to run two different types of fund in a single legal entity, each type of fund would have to have its own structure and receive separate tax approval. The rules of the fund should thus create a pension fund section and a provident fund section if a fund wishes to offer its members a choice between annuity and lumps sum benefits.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

In last month’s newsletter, we made reference to the ‘familiarity risk’ that NAMFISA discovered as the result of off-site inspections on a number of pension funds. NAMFISA directed these funds to consider this risk and to report back.

In last month’s newsletter, we made reference to the ‘familiarity risk’ that NAMFISA discovered as the result of off-site inspections on a number of pension funds. NAMFISA directed these funds to consider this risk and to report back.

Unfortunately the risk was not defined nor are we aware of any official guidelines. However in the relevant correspondence with funds, this risk is linked to the period for which service providers have been providing services to the fund.

The correspondence insinuates that service provider rotation mitigates this risk.

Let’s speculate and look at what this could possibly refer to and investigate each scenario.

1. A family or personal relationship exists between one or more trustees and one or more employees of the service provider.

   Firstly, personal relationships are not necessarily linked to the period over which the service provider has been engaged. Such relationships can develop over time and they can already exist upon the appointment of a service provider.

   Secondly where one is dealing with a board of trustees on the fund side and a company rather than an individual on the service provider side it becomes virtually impossible to avoid such familiarity either existing, arising or ending at any time.

   Thirdly, a relationship between a person on the fund side and a person on the service provider side will undoubtedly be diluted by the fact that it is a board of trustees dealing with a service provider organisation rather than two role players dealing with each other only.

   Fourthly, people come and go and are replaced by other people. So a relationship that has existed may end as the result of staff turnover but may also arise as the result of staff turnover.

   Fifthly, a family relationship does not necessarily constitute a personal relationship.

   Clearly, rotating the service provider will make no meaningful contribution towards mitigating the ‘familiarity risk’. Requiring role players to declare family relationships and maintaining a register is based on objective criteria, if narrowly defined, and should be a more effective mechanism to monitor and probe any decision. Other personal relationships would be based on subjective criteria that will essentially be impossible to define and would have to rely on the discretion of the person concerned. This in turn is better addressed in a code of conduct.

1. The processes, procedures, policies etcetera of service provider and the fund have over the years become so entrenched and routine that built in deficiencies are not uncovered by either party.

   Again deficiencies in processes, procedures, policies etcetera can develop over time or they can exist at the time of appointment.

   It is common cause that deficiencies in processes, procedures, policies etcetera are most likely to occur at the outset while they become ever more refined and better as time lapses. Track record is a very good indicator to what extent these have been improved over time.

   Clearly, service provider rotation will make no meaningful contribution towards mitigating any familiarity risk that may arise from this scenario. The more effective oversight and control is put in place by the Pension Funds Act by requiring the engagement of an actuary and an auditor and also by requiring a fund to be managed by a board of trustees equally representing employer and employees. Further effective mitigation can be achieved by unbundling the non-statutory day-to-day services to pension funds such as administration, risk re-assurance, asset management, asset consulting and employee benefits consulting.

Having dwelled on the possible risks of ‘familiarity’, every coin has two sides. So while ‘familiarity’ may present certain threats to the independence of judgement and could lead to leniency, complacency, loss of objectivity and lack of innovation that need to be considered  in perspective, service provider rotation entails serious risks that also need to be considered.

Service provider rotation will result in ‘short-termism’. ‘Short-termism’ has been shown to produce undesirable consequences in many walks of life. It can lead to a laissez fare attitude by employer and employee, fund and service provider, particularly when it comes to intangible or unquantifiable elements of service delivery and it can lead to arbitrage where the quantifiable elements are misused to divert the focus and measurement of intangible and unquantifiable elements.

In the case of pension fund administration, loss of information and of fund and member history normally occurs when a new administrator is appointed as the fund and member history is usually too extensive to be moved to the new administrator. Loss of fund history and information is also a serious risk when changing other service providers but mostly not as acute as in the case of the administrator. This risk is a lot more serious than changing your bank, car mechanic or your doctor as a fund has an infinite life and entails the history of many people. In all cases history and information will be lost and this could be very costly and even deadly, for an individual as much as for an organisation!

Dependence of one person on another person may well restrain the dependent person in freely expressing an opinion on the other person. The audit profession is the profession where the discussion on familiarity and the possible threat this may pose to the auditor’s judgement has become topical internationally. In the narrow sense of the word, an auditor is not a service provider as it is a statutory appointment with a public attestation function that a business is obliged to make. Internationally however, there is no consensus yet whether auditor rotation should be enforced. Some countries such as Australia and China have introduced obligatory auditor rotation. Others, we believe, like the US and England have stopped efforts to introduce obligatory auditor rotation while yet others like the Czech Republic who had introduced auditor rotation have removed this obligation. There has to our knowledge not been any discussion of the rotation of an audit firm where is serves a company in an advisory capacity only, serving a similar role to that of the consultant on a pension fund.

Finally, King IV, the ultimate measure of good corporate governance makes no reference to service provider rotation in the sector supplements for retirement funds.

Conclusion:

Although we evidently have a personal interest as a service provider to pension funds, we are convinced that service provider rotation with regard to non-statutory appointments of pension funds is ill-conceived. These appointments are not required to express an opinion on the fund they are servicing. Rotation will add no value, in fact it will add to the direct costs and indirect cost through loss of knowledge, information and history. It goes without saying that the application of good corporate governance principles by trustees must be the core of managing their funds. As long as these are observed in the course of appointing and reviewing service providers, the trustees have done their job and need not fear any intervention by the regulator.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Some funds have removed the reassured death benefit from their rules and provide these via a separate group scheme, while others are channelling their death benefits through a ‘benefit fund’.

In our opinion, where the purpose of the ‘benefit fund’ is to offer benefits upon death similar to those typically offered by a pension fund in the event of death of a member, the ‘benefit fund’ would most probably meet the definition of ‘pension fund’ and would then be required to register under the Pension Funds Act. Certainly in terms of the FIM Act, a beneficiary fund that administers, invests and pays benefits on the death of a member is covered by the definition of “fund” and every “fund” as defined has to be registered under the FIM Act.

In terms of the Income Tax Act, a ‘benefit fund’ is recognised as such if it has obtained tax approval. A benefit fund is an approved fund other than a pension fund, a provident fund or a retirement annuity fund as defined in the Income Tax Act, if it provides benefits for spouses, children, dependants or nominees of deceased members.  From the Pension Funds Act perspective a benefit fund, in our opinion, is a pension fund and has to register under the Pension Funds Act. Unlike pension funds, provident funds and retirement annuity funds, the application for tax approval of a ‘benefit fund’ does not require the fund to be registered under the Pension Funds Act. This in our opinion represents a tax loop-hole that will be closed sooner or later.

The benefit fund - pros and cons

Firstly, a ‘benefit fund’ is a concept that exists in the Income Tax Act but not in the Pension Funds Act. In terms of the Income Tax Act it enjoys preferential tax treatment similar to that of a pension fund or provident fund.

• The fund is not taxable (s 16(1)(d)) – same as pension and provident funds.
• Contributions by the employer are tax deductible (s 17(1)(0)) – same as pension and provident funds.
• Member contributions are not tax deductible (no provision to deduct) – tax deductible up to N$ 40,000 p.a. in case of pension or provident fund.
• Annuity/ pension benefits are taxable in the hands of the beneficiary (definition of gross income, sub-section (c)) – same as pension fund, provident fund does not pay any annuities.
• Lump sum benefits are tax free (definition of gross income, sub-section (c )) – 67% tax free in case of pension fund, 33% tax free in case of provident fund.

The definition of ‘benefit fund’ in the Income Tax Act is very similar to the definition of ‘pension fund organisation’ in the Pension Funds Act. We are consequently of the opinion that a ‘benefit fund’ as contemplated in the Income Tax Act is in fact a pension fund organisation as contemplated in the Pension Funds Act. It must therefore register as a pension fund under the Pension Funds Act and is then also subject to the Act.

This means that the principles of section 37 C have to be observed in distributing a death benefit. It should also comply with all other requirements of the Pension Funds Act such as having a board of trustees, appointing an auditor and actuary, submitting annual financial statements, statutory reporting etcetera. Where the benefit fund operates as an umbrella fund, participating employers are of course not impacted by the statutory requirements other than section s 37A, 37B, 37C, and perhaps 37D.

The employer owned group life policy – the worst alternative

Some funds have removed the death benefit from the rules to replace it with an employer owned group life policy that would pay directly to nominated beneficiaries. Either the reinsurance premium in respect of the death benefit is deductible by the employer but the benefit is fully taxable in the hands of the employer (section 17(1)(w) read together with the definition of gross income, sub-section (m)).  Alternatively, the premium is not deductible by the employer if the benefit accrues to the employee or a person who was dependant on the employee (section 17(1)(w)(v)).

The problem in this scenario is that the employer’s pension or provident fund is still sitting with the member’s fund credit that is subject to income tax and to section 37C of the Pension Funds Act. Furthermore the benefit is not subject to the protection of the Pension Funds Act and could be lost should the employer be insolvent or be liquidated, or should the beneficiary or his estate be insolvent.

The disposition of the reinsurance policy benefit is not subject to the Pension Funds Act which may make it easier to dispose of but this may not necessarily be in the interests of the deceased member.

Conclusion

Whereas a benefit fund thus offers a tax advantage on death benefit capital greater than N$ 98,000 per beneficiary over a pension fund and certainly over any provident fund death benefit, it does entail two administrative structures and the consequent duplication of costs, as the result of the reinsured death benefit being administered in the benefit fund while the benefit arising from the member’s accumulated capital is administered in the pension fund. Two boards of trustees need to apply their mind and allocate the two available capital amounts in their discretion in terms of section 37C of the Pension Funds Act. This could obviously present its own frustrations to beneficiaries and employers.

Arranging an employer owned group life policy renders the full benefit taxable and removes the protection of death capital offered by the Pension Funds Act that would apply to a pension- and a benefit fund benefit. From the tax point of view it is the least beneficial alternative but it is likely to be a cheaper alternative than the benefit fund while the distribution can be done more efficiently not being bound by the Pension Funds Act.

 Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

This is a question that must have gone through the mind of many people who have registered and have been receiving the state old age grant/ pension upon having turned 60.

The answer is fairly simple – yes it is taxable. In terms of the definition of ‘gross income’ in sub-section (a) of section 1 of the Income Tax Act, “any amount received or accrued by way of annuity” is gross income and anything that meets the definition of gross income is taxable in the first instance, unless the Act provides for an exemption or a deduction of an amount that is gross income in the first instance. The Act contains no provision that exempts or allows as a deduction the amount received by way of the state old age grant/pension.

The fact that no income tax is deducted and that the taxpayer is not issued a PAYE 5 certificate for the pension received in any year of assessment has no bearing on the taxability of the pension. The obligation to deduct income tax and to issue PAYE 5 certificates in respect of tax deducted is contained in Schedule 2 to the Act. Here the definition of “remuneration” is instructive as to when income tax has to be deducted, namely only in respect of “remuneration” as defined. Sub section (b) (iii) of this definition specifically excludes “any pension or allowance under the Social Pensions Act, 1973…or any grant or contribution under the provisions of section 89 of the Children’s Act, 1960…”

The state old age grant/ pension should thus be reflected as income in the taxpayer’s annual income tax return and will be subject to income tax provided the taxpayer’s total taxable income for the year of assessment exceeds the threshold of currently N$ 50,000.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Never heard of this risk? Read on and I will explain!

Talking about ‘familiarity risk’ in the foregoing commentary - from our own experience I believe there is another risk that trustees need to consider seriously – call it ‘familiarity risk’ for the lack of a better description and for reason of its close relationship with the ‘familiarity risk’ now launched by NAMFISA, but do keep on reading because it is close to my heart and it does concern me!

As a new kid on the block in 1999 when RFS was founded, most funds we took on were actually taken over from another administrator. At the time, many trustees were sick and tired of poor service, poor turnaround times, poor data quality etcetera and were anxious to get out of the claws of their administrator. The fact that we have been so successful undeniably speaks for a reputation we developed in the market. Key to our success I believe has been our expertise and experience, our focus on fund administration and our reporting. In many instances it took us years to sort out the mess we inherited, but we did. Our reporting was designed to support our efforts of implementing and maintaining due risk management and governance for our funds and for boards of trustees who were mostly comprised of layman trustees with very little exposure to and knowledge of the requirements of risk management and governance.

With many funds having come from a frustrating era with poor or no reporting before appointing RFS, trustees initially keenly followed our reports, questioned, probed and actioned where required. Over the years of our tenure however, we find that trustees in many cases have become so acquainted with our reports and so comfortable that ‘things are running smoothly’ that we are often not provided an opportunity to present our reports anymore! Of course our reports are extensive because they cover everything that is happening in the ‘engine room’ of the fund. Where the oil level is low, the report would point this out. Where a gear is worn of the report would say so. The meters are all there – it is left to the board to take the readings and make sure they are comfortable with the readings or take corrective action! Much more time it often spent on investments. But which fund takes active investment decisions? None I know of other than perhaps GIPF so, trustees award full discretion and cannot and do not want to intervene. The only active decision is the decision to hire and fire, but how often can you do this and how often can you do this meaningfully and with conviction?

So here is a true risk! Trustees get all information they need but choose to take the information as a given having developed a high level of comfort with their service provider. Shall we coin a new risk – the ‘comfort in a service provider risk’? If this is what NAMFISA had in mind when coining the new ‘familiarity risk’ I would be fully on its side! Who wants to live with this risk – any takers?

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

For many years now (since the 2012 tax year) the maximum tax deductible contribution by an employee towards a retirement fund has stagnated at N$ 40,000 per annum, and ever since Act 24 of 1981 was promulgated, no allowance was granted for contributions above foresaid tax deductible limit or for additional voluntary contributions! To make things worse from the taxpayer’s point of view, the increase in the maximum tax deductible contribution by an employee has been adjusted only infrequently since 1981 and has never kept up with inflation.

If it were possible to determine, which it is not, it would certainly be interesting to establish how much of the capital in retirement funds today actually represents member contributions that were never allowed as a tax deduction. My guess is that it will be around 25%. This would mean that one-quarter of all tax deducted by government would in that case be deducted irregularly. From the fund average member point of view, he/she is paying away in unnecessary tax around 5% of retirement capital assuming all one-third of all retirement capital is commuted tax free and further assuming an average rate of tax on the unfairly taxed two-thirds balance at an average rate of tax of 30%.

This can certainly not be considered to be fair towards the taxpayer where fairness is towards the taxpayer is internationally accepted as a key expectation of any tax regime. Despite this fact, government believes that for the tax concessions the Income Tax Act affords, justifies that it considers  ‘captive retirement capital’ as a source of cheap debt funding and for the advancement of its socio-economic development objectives.

It is high time that government recognises its obligation towards the taxpayers from a fairness point of view. It is also high time to adjust the maximum tax deductible contribution the taxpayer may make to a retirement fund. Perhaps NAMFISA as custodian and protector of pension fund members should pursue this leakage of retirement capital to... Government

 Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

As commented in the preceding article it is not only the Namibia Competition Commission that has taken up the cause of competition in the retirement funds market, but so has NAMFISA it seems, and established service providers have become the proverbial ‘sausage in the bread roll’. Being a sausage in a bread roll of course is never a good place to be in. The likelihood is that you will be eaten. So instead of just minding your business of being a sausage peacefully, you are now squeezed from two sides that want to ensure that you can and will be eaten and will not be a sausage in due course anymore.
 
In this endeavour NAMFISA recently issued offsite inspection reports to a number of retirement funds. Besides a few factual findings that funds need to attend to, the common thread in these reports is that service providers have been serving the fund for very long periods. It is alleged that this fact poses a ‘familiarity’ risk to funds and the relevant funds are directed to explain their risk management policy in this regard.

I certainly never heard of ‘familiarity’ as posing a risk to the operational activities of a retirement fund. In fact, we have always been very proud of our long association with most of our clients and believe that our understanding of the business of the participating employer and the fund, our familiarity with the business, has actually mitigated operational risks. First and foremost, our experience and our qualifications have contributed largely to us and our clients appreciating the operational risks of pension fund administration and we make a point of managing these risks based on our familiarity of the risk, and assisting our clients to be appraised of how these risks are managed. Since RFS commenced business, fund structures have become exponentially more complex. The risks this complexity presents to a fund every time it changes its service providers are enormous and probably much greater than the perceived risk of trustees having become familiar with their service providers on a personal level. It appears that this is how NAMFISA interprets ‘familiarity’ – i.e. the trustees know their service providers on a personal level and hence they are less inclined to objectively assess the service provided by the service provider, or am I missing the true risk that NAMFISA has identified?

Familiarity on a personal, rather than operational level is typically dealt with in trustees’ code of conduct. To remain objective and avoid having their objectivity fettered as the result of personal or family relationships, most codes of conduct require a trustee to recognise such relationship and to avoid this fettering his or her decisions. Up to now, this was the thrust of codes of conduct and the general understanding of a fiduciary’s independence. In fact I am not aware of any official pronouncement by NAMFISA or any other pensions regulator that aims to encourage service provider rotation for the sake of avoiding too close personal relationships developing over time. The closest pronouncement by NAMFISA is draft General Statement 9.8  to be issued under the FIM Act once this become law. This statement however, deals with ‘independence’ and mainly applies to trustees and statutory appointments by pension funds such as auditors and actuaries. These appointments have a statutory purpose that goes beyond the requirements of the client fund that requires independence of the party they are reporting on. However, even as far as statutory appointments go, it has only quite recently become  a topical issue in the audit profession whether or not there should be compulsory rotation of firms that provide such statutory service.

Of course the typical layman trustee will be intimidated by NAMFISA’s directive to review the manner in which this new version of ‘familiarity risk’ is managed and mitigated, and may just take the easy way out by firing their long standing service providers for the sake of being able to tell NAMFISA – “yes we fired the service providers as you required!” – without due consideration of the genuine risks of doing so!

Is this what NAMFISA wants to achieve? I do not believe so but, this will be the reality and NAMFISA will not take the blame for any ill-considered decision that may prove to have been very costly to the fund and its members!

So trustees be cautioned. Before you take a decision on the basis of the recent NAMFISA off-site inspection feedback, make sure that you obtain professional and independent advice by someone who is not in the industry but understands the industry! Personally I am not sure there is someone like this around because the moment you are out of our industry you lose insight and expertise very, very rapidly! And, trustees please take note – I do not have a hidden agenda, I do have a very personal interest in this matter!

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

It seems that the Namibian Competition Commission has resolved to join forces with NAMFISA in promoting more competition in the retirement funds industry. Interestingly though, it chose to  bracket out two-thirds of the retirement funds industry comprised of retirement annuity funds and surprise, surprise... the GIPF! In this endeavour, RFS and the only other larger player in the private funds market segment, and RFS and three other larger players in the umbrella fund market segement,  were served with a notice of an investigation by the Namibian Competition Commission into alledged uncompetitive practices in the pension fund service provider industry. It appears that the Competition Commission took its clue for such an investigation from an article in the American Journal of Marketing Research which comments on “The Nature of Commercial Practices in the Namibian Pension Fund Administration Market”. The article is the result of a study by MR Zamuee through the Maastricht School of Management. The study claims that “…the Namibian pension fund administration landscape is highly concentrated with 3 administrative firms controlling 80% of the market...”

If the Namibian retirement fund service provider industry were to be investigated, it is incomprehensible that the investigation will not cover retirement annuity funds and the GIPF who cover two-thirds of the market, with the GIPF of course being by far is the largest player in the Namibian retirement funds market. By our estimates retirement annuity funds and the GIPF together control 71% of total assets and 61% of total active membership (excluding pensioners) of the retirement funds industry. RFS in contrast, controls a ‘whopping’ 11% of total assets and 12% of total membership (excluding pensioners) of the retirement funds industry!

Although GIPF may argue that it is administering the government staff in the fund, it is in fact also offering its services to the wider pension funds market and is competing with private pension fund administration companies, particularly in the para-statal pension fund market and it competes with other private funds that offer membership to quasi government employers.

Against this background I would argue that the conclusions reached in this study are factually incorrect since the study excludes the retirement annuity funds, and the GIPFas largest administrator by far. In fact the GIPF’s  disproporationately size in the Namibian financial sector should ring alarm bells at our regulators, as it presents a major systemic risk to the Namibian economy in general and the Namibian financial market specifically. There is no competitor in Namibia that has the resources to meaningfully compete against a GIPF that has the added advantage of employing taxpayers’ moneys to fund its activities.

Considering that the Namibian employer based pension fund market only covers some 200,000 employees, of which roughly one-half is the exclusive domain of the GIPF, the remaining 100,000 employees are covered by 5 administration companies. Considering further that an administration company needs to administer at least 20,000 employees to be viable, Namibia would have 5 administration companies that are all on the border line of not being viable if the total remaining market were to be shared equally between the 5 administrators. This is substantiated by the fact that since Namibia’s independence every time more than 3 administration companies were active in the non-GIPF market, one of them closed down its administration operations sooner or later.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

To say that a pension must be managed strictly in accordance with its rules is stating the obvious. It is probably sometimes not obvious to trustees though, that they cannot make decisions that are not provided for by the rules, either explicitly in terms of specific provisions, or implicitly in terms of general provisions. If neither exists in the rules, trustees would act ultra vires and may be held accountable for any loss the fund or its members may suffer as the result of such action, even in their personal capacity.

But what do trustees stand to do where the rules provide for alternative benefits without giving guidance under what conditions to employ the one as opposed to the other alternative? An example we have recently had to deal with is where the rules in the event of death of the member or pensioner, provide for a member’s or a pensioner’s remaining capital to be paid as a lump sum in terms of Section 37C of the Pension Funds Act, alternatively in the form of a pension to a dependant or dependants of the member or pensioner. No indication is given on any particular priority or preference.

In such instance the rules provide discretion and it is the trustees that need to apply this discretion being the party charged with managing the affairs of the fund. This means that they have to apply their mind before they take a decision they believe to be in the best interest of the beneficiary/ies. To be able to apply their mind with due care, they need to get as much information as possible on dependants and nominated beneficiaries as  they would do in the event of being required to decide on the distribution of a lump sum death benefit.

Consulting the dependants and beneficiaries becomes an essential element of the information the trustees need to obtain. When they come to the point of deciding whether to pay the capital in a lump sum or as an income to a beneficiary/ies, Section 37C must first be ignored and must be ‘replaced’ with their discretion that will lead to a rational and defensible decision. However, if the decision is taken that payment as a lump sum is in the best interests of the beneficiary/ies, the requirements of Section 37C now have to be observed.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

18  Years ago Tilman Friedrich and Mark Gustafsson walked out of Alexander Forbes after it bought out ailing Ginsburg, Malan and Carsons who operated in Namibia as United Pension Administrators (UPA). UPA started off in the mid 1980s as a small long-term brokerage to mutate over time to the largest Namibian fund administrator and consultant (excluding the GIPF of course), outpacing all its foreign competitors. UPA under the able hands of Charlotte Drayer in fact introduced private fund administration to Namibia when it took on the administration of the Ohlthaver & List Pension Fund and the Ohlthaver & List Provident Funds after its very bad experience with a South African broker and the SA insurer who was the underwriter of the fund at the time.

When Alexander Forbes took over UPA, the writing was on the wall for UPA’s Namibian management team. Its choice was between knuckling down and accepting that Alexander Forbes would have been virtually a monopoly in the private funds market or setting up a truly Namibian organisation that would offer a welcome alternative to the market.

The past 18 years have proven that the decision to establish RFS was the right decision at the right time. Today RFS is lagging its biggest competitor in the private funds administration market by a slim margin only. This would of course not have been possible without dedicated and loyal staff and without loyal clients!

To all our staff and to all our clients, we express our most sincere appreciation for your loyalty and support over the past 18 years! We look forward to continue our special relationship for many years to come!

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Paragraph (iv)(aa) of the definition of ‘pension fund’ in the Income Tax Act provides that if “…the total value of the annuity or annuities which an employee or other person referred to in paragraph (a) becomes entitled to exceeds N$ 50,000, not more than one-third of such annuity or annuities may be commuted for a single payment.

Paragraph (a) refers to “…employees on retirement from employment or for widows, children, dependants or nominees of deceased employees…”. In the previous article I argue that this does not refer to the estate of any of these persons and the commutation provision thus does not apply to such amount payable to an estate.

Clearly the provision on commutation applies when a person becomes entitled to an annuity. Therefore if another annuity becomes payable to a dependant or nominee of an annuitant upon the death of the annuitant, the dependant or nominee of the deceased annuitant only then become entiled to an annuity and may once again commute.

Note that the aforegoing also applies to a preservation pension fund as the definition of ‘preservation fund’ mirrors that of ‘pension fund’.

Note further that in case of a retirement annuity fund, its definition in paragraph (b)(vii) categorically states “…where a member dies after he or she has become entitled to an annuity no further benefit  shall be payable other than an annuity or annuities to his or her spouse, children, dependants or nominees.” In the case of this type of fund the successor of an annuitant must be paid an annuity. Should the successor of an annuity have passed away before the annuity becomes payable, the annuity must continue to be paid to the successor’s estate. This means that the estate must be kept open until the past annuity payment has been made, with obvious implications for the administration of the estate.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Most retirement funds offer disability benefits to their members. Typically this would be an income replacement benefit in the event of the member experiencing a reduction or loss of income as the result of injury or illness which will be paid for as long as the member experiences such reduction or loss of income and until the member passes away or retires, whichever occurs first. Sometimes funds also offer a once-off lump sum that will be paid when a member becomes totally and permanent incapable of pursuing any occupation for gain anymore for the remainder of his life.

Over and above the disability benefits a fund may offer its members, many members also have disability cover in their own capacity, either as an add-on to their life insurance policy or as a stand-alone policy such as PPS.

What will happen in the event of disablement – will you be able to put in a claim against each policy and if you are insured well will you be better off after disablement than you were before? One thing is for sure, if it would have been possible to ensure yourself to a level where you would be better off after disablement than before, we would see many more people claiming to be disabled. Insurance companies still experience a significant increase in claims in tough economic times and this is despite all the means at their disposal to verify the legitimacy of the claims.

Insurance companies have realised that it would be unethical to collectively insure a person to a level where a person would earn more after disablement than before disablement. A basic premise of any insurance is also that the insured must have an interest in the insured event not happening – an insurable interest. Clearly, the prospect of earning more after disablement than before disablement would be contrary to this principle.

Insurance companies therefore have a mutual arrangement that an insured cannot be better off after disablement than before disablement and for that purpose information on claims is exchanged between insurers. Where a claim for disablement arises and the disabled enjoys cover under different policies, the insurers would in aggregate never pay the claimant a benefit that exceeds his income prior to disablement. So if you have two policies both covering you against any loss of income and you experience a total loss of income, each insurance company would only pay you 50% of your loss of income.

The inference of this arrangement between insurers is – do not over-insure yourself as you will not reap the ‘benefit’

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

The Pension Funds Act is very specific as to how a death benefit is to be disposed of. The principle is that the benefit must be allocated to dependants and nominated beneficiaries. Where there are no dependants or beneficiaries the benefit must be paid into the estate of the deceased. Where there are no dependants but only nominated beneficiaries and a beneficiary has passed away the benefit must be paid into the estate of the deceased beneficiary. In accordance with current Inland Revenue interpretation the greater portion of the benefit must be paid as an annuity where it is payable to “…employees on retirement form employment or for widows, children, dependants or nominees of deceased employees...”.

I would argue that the interpretation of the definition of ‘pension fund’ would allow a death benefit payable to an estate of a deceased employee to not fall under the ‘34% minimum annuity’ rule (i.e. 51% as annuity of which one-thrid may be commuted), and is thus capable of being paid in a lump sum. This is on the basis of the estate not being covered by “…annuities for employees on retirement from employment or for widows, children, dependants or nominees of deceased employees…” but would rather fall under the extension of the clause where it refers to “…and also for the purpose of providing benefits other than annuities for the persons aforesaid;” The reference to “…persons aforesaid…” should in this context also be read to refer to the deceased employee. This lump sum would not be taxable in terms of paragraph (d) of the definition of ‘gross income’.

I would further argue that the definition of ‘pension fund’ as referred to above also cannot intend to prevent payment of a benefit due to a deceased beneficiary (i.e. widow, child, dependant or nominee of deceased employees) in terms of the Pension Funds Act. This is perhaps an omission in the IT Act and hence the taxablility of the benefit would have to be determined in accordance with the general principles of the IT Act. In the case of such a benefit it can only fall under paragrapyh (d) of the definition of ‘gross income’ and is thus also tax exempt

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

by Marthinuz Fabianus - Deputy Managing Director

When considering a retirement savings vehicle for employees, an employer can opt for a pension fund or a provident fund. Except for income tax differences between the two which I will deal with further on, the main difference between the two is that members of pension funds are able to only take out a portion of their retirement benefits (currently one-third) in a lump sum upon retirement. The remaining amount (two-thirds) is to be paid as a pension in monthly pay-outs. Members of provident funds can take out as much or all of their benefits as they would like in a lump sum at retirement. Provident funds gained popularity in South Africa in the 70’s with the establishment of homelands and a surge in foreign migrant workers employed in the South African mining and steel industries.  Given our colonial history, Namibia obviously inherited the pension and provident fund concepts in the Income Tax Act.    

My contention is that provident funds have always been less advantageous from an Income Tax point of view compared to pension funds. At retirement, one-third of the lump sum payable from a provident fund is tax free. The balance two-thirds is fully taxable in the hands of the retiring member per his marginal rate of tax. A member of a pension fund on the other hand, may also commute a maximum of one-third tax free in a lump sum. Income Tax is payable on the monthly income (pension) payable from the balance two-thirds. This implies that no tax is currently payable on the first N$50 000 per annum and only the income above this is taxable per retiree’s marginal rate of tax. Moreover, in the event of death of a provident fund member, two thirds of the benefit payable is taxed in the name of the deceased, at the deceased’s marginal rate of tax. Under a pension fund on the other hand, up to 66% of the benefit payable upon the death of a member may be commuted in a lump sum free of tax. The balance 34% is to be paid as income from where Income Tax would become payable in the name of the beneficiary, but again only the income above N$ 50 000 per annum will attract Income Tax at the marginal rate of tax.  

My second point of contention is that very few people (and this holds true for even the most educated) have the ability and discipline to manage retirement capital prudently for their survival during their retirement years. It is to be noted that after the average retirement age of 60 years, a person can still expect to live another 20-30 years. The retirement capital should thus be managed in such a manner that it outlives the pensioner and  still leave something behind for his or her spouse to survive on and/or any other substantive dependents the retiree may still have. To make matters worse, our Receiver of Revenue has recently come to the correct realisation that the entire retirement benefit paid from a provident fund forms part of the gross income and a tax directive is a requirement in all cases even if the member of the provident fund decided to use the two thirds to provide a monthly pension. The relevance of the tax directive requirement is that Inland Revenue can intercept the benefit in case of a delinquent taxpayer. The relevance is also that once a benefit is gross income, a transfer to an insurance product for the purchase of an annuity is a voluntary transaction. This transaction does not enjoy the exemption that is offered if the capital were to be transferred to another approved fund and is fully taxable before transfer to the insurance product.  

We all know that the state old age grant is minimal and cannot be regarded as adequate except for a very low standard of living. This makes the provision of a secured income during retirement age the ever more essential. As an aside, South Africa is currently in the process of doing away with provident funds in that country.

This to my mind makes the future of provident funds in Namibia doubtful.

Marthinuz Fabianus is Deputy Managing Director at Retirement Fund Solutions. He graduated from Namibian University of Science & Technology with a Diploma in Commerce and Bachelors in Business Management. He completed a senior management development programme from University of Stellenbosch and various short courses including a Macro-economic policy course which he completed at the International Training Centre of the ILO in Turin, Italy. Marthinuz has 23 years industry experience.

The crux of a meaningful tender evaluation for fund administration services is the tender specification. If the tender specification does not explicitly provide for all services currently provided by the fund’s incumbent administrator, trustees are unlikely to arrive at an objective conclusion and may feel mislead when they eventually find that the savings they had expected never realised.

The incumbent administrator will have a handicap as it will never be able to offer the argument that certain services were not costed for because they were not specified while prospective service providers will not be aware that certain services are required unless they were specified in the tender.

A while ago we had to accept defeat on two of our prime clients who we had served with an impeccable record for more than 10 years, after we had inherited them in a dire state of affairs as far as their administration was concerned. As we learnt unofficially trustees believed that our tender was more expensive than the successful bidder’s tender.

It has now been proven once again that the proof of the pudding lies in eating it. The savings trustees hoped for through the appointment of another administrator in recent instances never materialised. The tender evaluation was evidently either done improperly or the full facts were not brought to the trustees’ attention.  In the long run this can prove to have been an expensive decision based on a deficient tender specification.

An interesting question came up the other day that is worth sharing. A member of the Benchmark Retirement Fund passed away leaving a spouse and major children. The deceased completed a beneficiary nomination form at a time the employer participated in another pension fund but did not complete a beneficiary nomination form after the employer moved to the Benchmark Retirement Fund. The investigation by the fund revealed that the major children are employed and are not financially dependent on the deceased and that the spouse is self-employed.

On the basis of these facts the trustees allocated the full benefit to the spouse subject to the spouse applying no less than 51% of the capital to purchase an annuity. Since the needs of the spouse are fully taken care of from her inheritance, the spouse approached the fund whether the capital to be applied can be split up into three portions so that an annuity can be purchased for the spouse and the major children.

The fund informed the spouse that the spouse’s request can unfortunately not be accommodated by it. Section 37A of the Pension Funds Act provides for only 3 exceptions to the general principle that a benefit cannot be reduced, transferred, ceded, hypothecated, executed etcetera. The first exception is with regard to deductions permitted in terms of the Income Tax Act. The second exception is with regard to deductions permitted in terms of the Maintenance Act. The third exception is with regard to any deduction permitted in terms of section 37D.

Evidently the request by the spouse is not covered by the first two exceptions, but what about section 37D. This section is very specific in terms of what may be deducted. It provides primarily for housing loans and loan guarantees and for amounts due to the employer in respect of compensation for any damage caused to the employer through theft, dishonesty, fraud or misconduct. The section also provides for the deceased’s or a beneficiary’s medical aid or insurance premiums to be deducted as well as anything else for which the Registrar has given specific approval.

Once again the request by the spouse is not covered by any of these exceptions and the fund was hence correct in turning down the request by the spouse.

The situation might have been quite different, had the deceased left a valid beneficiary nomination form. In this instance, the fact that the latest beneficiary nomination form was a form of another fund it could not be taken into account by the trustees of the Benchmark Retirement Fund. Section 37C requires that a beneficiary must be designated in writing to the fund, the operative phrases being ‘in writing’ and ‘to the fund’.

Had deceased nominated the two children, the trustees would have had to consider a fair distribution of the death benefit between the spouse and the major non-dependent children and could have been guided by the a properly substantiated request by the spouse. And a final observation – the spouse of course needed not to be nominated to qualify for a portion of the death benefit being a legal dependent of the deceased through marriage.

Deputy Managing Director Marthinuz Fabianus talks about the importance of engaging with fund members.

It has been so many years since I have been on the road to talk to groups of members of pension funds. This may explain why I thoroughly enjoyed and appreciated recent road trips I embarked on during March to engage and present to members. The exercise evoked good memories of my early encounters with members across different industries, from all levels of employees and from across the length and breadth of the country more than 20 years ago in some cases.

My first session was with over 300 factory workers of a fishing company. Even though this is obviously a very large group and you will expect not to have an effective and meaningful conversation, the opposite was true. The group was very attentive, enthusiastic and engaging. It was in hindsight pleasing to observe that the group consisted of many who were part of the same group that I consulted to more than 10 years ago and were at that stage very hostile as they were filled with distrust, ignorance, with anger and disappointment amongst many negative feelings. This was because their previous pension fund at the time was poorly managed and the members were kept in the dark about the affairs of the pension fund. Having provided them with a lot of education, assurances and commitments for the transition (which were obviously lived up to), assured me of a respectable return encounter. This time around, members were interested in finding out if the benefits offered by the fund could be improved further. They made suggestions to be allowed to make additional or voluntary contributions and suggested an increase of the group funeral benefits. They also requested that their pension fund savings be used as security for housing loans from financial institutions. This is the kind of constructive conversations trustees and pension fund service providers alike should and can have when members are happy with the management of their pension fund.

My second session was with a much smaller group of white collar mining employees. In this session, the members where facing an imminent retrenchment from their employment and thus had a bleak outlook. To make matters worse, the average prudential portfolio returns were depressed over the past year as a result of overall an down turn and volatility in financial markets that prevailed and continue unabated for the past 2 years.  This scenario affirms the point that pension fund investments are long term in nature and should not have to be called upon in the short term, lest it be perceived incorrectly as disappointing.  Instead, members of pension funds should be educated to plan financially for certain eventualities, e.g. sudden loss of income.

My third engagement with groups of members during the course of March this year was with another relatively big group of educationalists from the vocational sector. This group also had various questions they needed answers on but focused on the stringent guidelines laid down by the Pension Funds Act regarding the disposition of benefits on the death of a pension fund member, as well as the income tax deductibility of pension fund contributions.

Unless trustees in particular make a point to engage and have face-to-face contact with members, I would venture to suggest they will not really be able to stay on top of the pension fund needs of their members and risk providing  benefits that are out of pace with member needs. 

Marthinuz Fabianus is Deputy Managing Director at Retirement Fund Solutions. He graduated from Namibian University of Science & Technology with a Diploma in Commerce and Bachelors in Business Management. He completed a senior management development programme from University of Stellenbosch and various short courses including a Macro-economic policy course which he completed at the International Training Centre of the ILO in Turin, Italy. Marthinuz has 23 years industry experience.

South Africa prides itself of being at the forefront of good corporate governance on the basis of the 16 plus one principles formulated in the King IV report.

A trustee on a pension fund’s board of trustees is in no different position to a director on a company’s board of directors. Trustees in SA have been held liable in their personal capacity for wrong doings on their fund and Namibian courts will undoubtedly look for SA precedents when adjudicating on any wrong doing by a board of trustees in Namibia.

The key concepts of directorship and trusteeship are

• Duty of good faith
• Duty of care
• Duty of skill

Trustees are required to manage the affairs of their fund in the best interests of their members. As a trustee there are many areas one needs to consider and measure your fund to understand whether you are doing good, bad or indifferent. Commonly for example, trustees measure the performance of the investments of the fund. The investments being the biggest asset of the fund, the performance can fortunately be measured against readily available benchmarks and trustees will at all times know how they are doing and when they may expect to face head winds from their members if they are not doing that well. So that area is covered pretty well provided trustees have applied care, skill and good faith in appointing the asset managers they did appoint.

But what about fund expenses, managed by the trustees in their absolute discretion? There are no readily available benchmarks. So one board of trustees may decide that the fund should carry the cost of each of their trustees doing an MBA or similar qualification to better qualify them in managing the affairs of the fund. Another board may decide it should be good enough to have each trustee attending a relevant training course once every second year. One board may decide trustees need international exposure to be better equipped to act in the best interests of the fund’s members taking into account international developments while another fund is only prepared to support local seminars and courses.

So how does your board of trustees decide whether your policies measure up well against the duties of care, skill and good faith? This is particularly critical as far as expenses are concerned that are incurred for the direct or indirect personal benefit of trustees – an area where trustees are likely to face serious censure if they have not managed to separate personal interests from fund interests.

As far as the example of training goes, one important consideration is whether trustees are serving the fund on a full-time basis or only on a part-time basis. If one looks at this question from a company’s point of view, any company would go to much further extents in training staff to run the business of the company because the benefits of such training would accrue to the company on a ‘24/7 basis’, i.e. the dedicated employee is expected to plough back into the company everything he learnt.

Directors or trustees typically only serve the company or fund on a part time basis and are expected to have a sufficiently solid foundation to understand and to apply their obligation of duty of faith, duty of good care and duty of skill to overseeing the management of the business of the entrusted entity. So one needs to distinguish clearly between these two situations. Company’s often have benchmarks for staff training and maybe the VET levy is a good starting point as this is what government effectively has resolved employers should spend on training their staff. The same principles can be applied to a pension fund where the payroll comprises of the salaries paid to full time staff plus the trustee remuneration.

To assist trustees we have established a data base of funds administered by RFS. The average in each case is probably a good benchmark. Anything closer to the minimum or to the maximum should be probed properly to determine whether it can be justified or whether it may expose the trustees to a risk.

Here are the figures your fund may wish to benchmark to.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

NAMFISA has circulated proposed changes to the current levy structure. These changes will have a major impact on funds, and trustees and principal officers are advised to acquaint themselves with this matter and to formulate their position. Unfortunately the due date for comment of 21 April has already expired.

Download the NAMFISA circular here...

Read our client circular that reflects our thoughts on this, here...

The direct levy on pension funds is proposed to change from N$ 250 per fund plus N$ 12 per member and pensioner, per year, to 0.0027% of total assets per year.

Besides citing very noble objectives in setting the new levy structure, NAMFISA has given no indication what the impact of the proposed changes would be on its total income.  Applying the current levy structure to our client base, the direct levy on pension funds increases from approximately N$ 400,000 to approximately N$ 4 million – an astronomical increase by any measure. As the previous basis was purely fund membership while the new basis is purely fund assets the impact of the proposed levy varies from fund to fund. In our client base the lowest increase will be 80% and the highest 2,400%, the average increase being 1,000%!

We estimate the impact of the increase in the direct fund levy for the industry to increase 10 fold from approximately N$ 4 million to approximately N$ 40 million

Of course pension fund members will further be taxed by NAMFISA  through the following levies: -

• Levy on insurance companies changes from 0.1% of total liabilities to 0.3% of gross premiums income. Based on the NAMFISA statistical bulletin for quarter 2 of 2016, the levy on long-term insurance companies will drop from approximately N$ 40 million to approximately N$ 5 million.
• Levy on unit trust schemes (where a fund invests in these) increases by 1,600% from 0.0033% plus N$ 5,000 per year to 0.053% of total assets managed. Assuming that funds investing through unit trusts will not be levied both the levy on unit trust management companies and the levy on asset manager who mostly do manage the assets of unit trust management companies we assess the impact only under the following bullet point.
• Levy on asset managers increases by 1,250% from 0.0012% plus N$ 5,000 to 0.015% of the total value of investments. We estimate the impact of this to increase the levy from approximately N$ 2 million to approximately N$ 21 million.
• Levy on unlisted investment managers is to be introduced at 0.053% of total assets managed. We estimate this new levy to raise an additional income of N$ 2 million.
• Levy on stock brokers increases by 800% from 0.0033% to 0.026% of total value of total value of securities traded. Unfortunately we do not have any statistics to estimate the monetary impact of this increase on pension funds.
• Levy on short-term insurers decreases from 1% to 0.569% of gross premium income. We estimate  the impact of this decrease to be a reduction of income from approximately N$ 9 million to N$ 5 million.

Conclusion

Assuming that half of the long-term insurance premiums are contributed by pension funds, pension funds will carry levies of around N$ 65 million which means that the pension fund member/ pensioner will contribute approximately N$ 200 per annum. Calculating the future and the present value of a member contribution of N$ 200 per year over a 40 year working life time, plus another 20 years in retirement, at a real return of 5% per annum implies that each fund member must pay NAMFISA N$ 4,500 up front to compensate it for its regulatory role, or must pay N$ 36,000 in today’s terms at the end of his or her 40 year fund membership!

Pension funds are undoubtedly the biggest contributor to the coffers of NAMFISA by far!

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

The popular and powerful adage “knowledge is power” has been traced back to the 15th century.  I consider myself fortunate to have learnt it early on when the emblem of my brand new primary school in Arandis, named after Rössing Uranium Mine, was unveiled in the early 80’s with this inscription. However, in recent times, this quote has been re-coined to “shared knowledge is power”. I cannot agree more with this, as it brings to mind the unfortunate state of ignorance about financial matters of the majority of members of pension funds in Namibia. Despite some initiatives, notably by the Financial Literacy Initiative (FLI) of the Ministry of Finance and NAMFISA’s consumer education campaign, I am afraid not much if anything at all seems to be done to improve the level of financial illiteracy amongst pension fund members.

The FLI that arguably may have reached the biggest audience, seems to focus mainly on personal and business finance, whilst NAMFISA’s consumer education campaign that one would have expected to deal more with pension funds, seems to have died a natural death. I would like to believe that for the majority of grassroots members of pension funds, their single biggest asset when they hang up their working tools to retire, would be their pension fund savings.  Pension fund concepts are probably amongst the most complex to understand and relate for many pension fund members. However, if pension fund assets amount to more than 70% of our country’s GDP, then the owners of these assets need to be made more knowledgeable about the workings of the vehicle hosting their largest single asset.

Now reading this you are probably thinking “yeah right, tell us how to improve their knowledge”, or “you try making members understand pension fund benefits and investments!” Well, I am not professing to have much needed answers, however first step is for pension fund stakeholders to recognise that not much has been done and resolve to do somewhat more than hitherto has been the case.

Over years of my experience with pension funds, I found that employers that take an active interest, place great value on pension funds as an extension of employee benefits and recognise it as key in attracting and retaining staff, tend to be more concerned about pension fund members’ need to understand the benefits offered. These employers in addition to their contributions to their employees’ pension fund would also employ a person(s) in their human resources team to look specifically after the affairs of the pension fund either as fund Principal Officer or assistant to the fund’s Principal Officer.

Members of funds would mostly trust their own colleague if they needed advice or need to be referred for advice on pension fund matters. If a person in such position builds up all required knowledge on the structure, workings and relevant laws applying to pension funds, he or she can become a key asset to an employer. With the trust the in-house person would automatically command amongst less literate members of the fund, I believe such a person can be the appropriate medium to educate members on matters concerning their fund and related employee benefits matters. This person has the added advantage that he or she better knows and understands the culture of the employer and other employer information that may be too sensitive to entrust to outside service providers and has access to various resources of the employer as may be needed in rendering a service to members of the fund. I believe investment in such a resource by the average size employer can thus be invaluable in increasing the level of financial literacy amongst pension fund members.

Marthinuz Fabianus is Deputy Managing Director at Retirement Fund Solutions. He graduated from Namibian University of Science & Technology with a Diploma in Commerce and Bachelors in Business Management. He completed a senior management development programme from University of Stellenbosch and various short courses including a Macro-economic policy course which he completed at the International Training Centre of the ILO in Turin, Italy. Marthinuz has 23 years industry experience.

For RFS, 2016 was a year of mixed fortunes. On the down side, we unfortunately lost our appointment as administrator to 2 of our prestigious clients. Both funds went out to tender during 2015, after RFS had been serving them for 15 years. Both funds were in ‘administrative distress’ when we were appointed in 2001 and both have never looked back since they had the courage to engage that new kid on the block called RFS, soon after the company was established. In both cases, however, corporate memory of painful experiences preceding our appointment in 2001 has faded over the years through changes to the composition of the boards of trustees. Where price at the time was rated second to service quality and reliability, these considerations were ostensibly no longer considered imperative. The dilemma of trustees is how to weigh up cost against quality of service. Bad experience cannot be corrected at any price!

On the positive side, RFS was re-appointed by 9 clients since 30 June 2015, following their regular review of service provider mandates. This record speaks for itself, is testimony to our reputation in the market and the trust and confidence our clients have in our capabilities. We are extremely proud of this achievement and of course also extremely grateful to these clients! At the same time we are humble and appreciate that clients expect to receive value for their money. For this we have to continue going the extra mile to meeting our clients’ expectations.

RFS has no intention to be the largest player in our market but has every intention to be uncompromising in its pursuit of delivering a service of the highest standards!

As far as the Benchmark Retirement Fund, our unique house brand, is concerned we have expanded the range of products available in the fund in response to the challenge posed to pension funds by Inland Revenue’s new interpretation of Practice Note 5 of 2003 and in anticipation of what impact the National Pension Fund and the FIM Bill is likely to have on stand-alone pension funds. In addition we have introduced an innovative living annuity product that will assist pensioners to manage their income in retirement sustainably and to manage market volatility in an innovative manner.

For the past year-and-a-half we have invested substantial resources in having the MIP administration system developed to support our efforts of delivering an advanced and superior service experience to our clients. In 2017 RFS is set to turn over a new leaf in its history with the migration from the Compen administration platform to the MIP administration platform, a state of the art web-based system that will assist us in meeting the ever more technology driven needs of our clients and the market.

Besides our challenge to convert all clients to MIP the regulatory environment will no doubt pose a number of challenges to retirement funds and to us as administrator of funds. Here we are referring to the National Pension Fund that SSC aims to launch in 2017 and the FIM Bill that NAMFISA aims to have enacted in 2017. These laws will no doubt introduce incisive changes to the retirement funds industry and are likely to lead to the demise of a number of retirement funds.

In the light of the large slice government and its SOE’s already represent of the Namibian economy and the financial distress that government is experiencing, it is concerning to the private sector that government seems intent on taking over an ever growing slice of the economy through the establishment of more and more para-statals that are all siphoning off revenue that could have ended up in in government’s coffers. These SOE’s to a large extent operate in a protected environment that suppresses the free market mechanism of allocating resources and promoting competition for the benefit of the consumer. Hardly a month goes by without the announcement of the establishment of yet another SOE. Can Namibia afford this?

“No more business as usual for (SA) employee-benefits” is the headline of an article that appears below. The message of this article is that “The one-size-fits-all model of offering employee benefits to large groups of employees was simply no longer appropriate.”

It is a well-known statistical phenomenon that in any population, let’s talk about pension fund membership and members’ needs in this case, the bulk of experiences in the population are concentrated around the centre of the curve with a steep decline in experiences on either side of the curve. In terms of cost effectiveness the further any fund tries to move to the outer ends of the needs curve, the more costly it will become to provide for the need and the less value the fund will add in providing for a particular need relative to the greater membership of the fund.

To satisfy every need of every member in a group arrangement is certainly nice to have but will not be affordable and not in the interest of the bulk of members. That is not the purpose of a group scheme!

Retail products in contrast are built around and for the needs on the individual. But the individual has to weigh up the cost of providing for each of his needs against the benefit this presents to him and will take a rational economic decision. In a group scheme everyone will have to contribute towards the cost of the scheme providing for my unique needs.

A group scheme aims to cover the bulk of members’ common needs at an affordable cost!

Having said this, RFS will now have the capability through its new MIP administration platform to offer extensive individual choice and flexibility adding every extent of complexity that one can think of. However, our business purpose is to provide appropriate solutions rather than deliberately increasing complexity for the sake of building our revenue streams.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Section 37 D of the Pension Funds Act prescribes the conditions under which an employer can have an amount deducted from a member’s benefit and paid to the employer directly. Section 37 A prohibits the member to give permission for the deduction of his debt to his employer while section 37 D defines very specific scenarios under which an amount can be deducted from a member’s benefit.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

For member contributions to be tax deductible it is essential that these are made in terms of the rules of the fund. The Income Tax Act granting the concession to members to make tax deductible contributions to a fund requires that membership of the fund must be a condition of employment and that regular contributions must be in accordance with specified scales. The Income Tax Act does not link the employer contributions to an individual member’s pensionable salary but rather to his/her total approved remuneration. Remuneration is a wider term than pensionable salary and can include other costs of employment relating to the employee.

Pensionable salary is normally defined in the rules of a fund as the basis for determining the contributions to be made to the fund by the member and by the employer.

Most rules of funds would define pensionable salary as -

“The MEMBER'S basic annual salary or wages and any other regular amounts paid to such MEMBER as are regarded as pensionable by the BOARD OF TRUSTEES at the request of the EMPLOYER”

As far as the rules are concerned, contributions must thus be linked to pensionable salary. Whether or not a salary is paid during maternity leave is usually set in the conditions of employment.

Scenario 1 – No salary is paid to member on maternity leave

Where no salary is paid, there should be no contribution by either member or employer, based on the definition of pensionable salary.

If the employer does not continue to pay any regular amount to the member while on maternity but wishes to continue contributing this would be in contravention of the rules. It would essentially be a voluntary contribution by the employer, posing the risk that the Receiver might disallow it for tax purposes. It is unlikely though that the employer would exceed the total that the Income Tax Act allows the employer to deduct for tax purposes in respect of such member, it being based on the wider concept of total remuneration per Income Tax Act, rather than the narrower definition of pensionable salary in fund rules.

Scenario 2 – employer continues to pay a salary to the member on maternity leave

If the employer continues to pay any regular amounts to the member on maternity leave, both parties should contribute based on such regular amount. In this scenario the failure of the member to contribute while on maternity leave is a contravention of the fund rules and must be recorded as a debt to the fund. The member’s record would be built up by the administrator from month to month as if that contribution was received. How that debt will be disposed of, is a matter between the fund and the employer.

The risks faced by the fund and the employer under this scenario of suspending the member contribution though is minimal. If an agreement has been reached between employer and member to do so, the member has very little argument to challenging the employer as this actually benefits the member at the time of maternity leave.

Conclusion

Both scenario 1 and scenario 2 pose potential risks, where the rules of a fund do not provide for members on maternity leave. The potential risks posed by scenario 1 and scenario 2 are small. The rules should preferably be amended to correctly reflect the employer’s employment practice in this regard.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

As the saying goes, ‘the tallest poppy gets its head chopped off’. It seems that there are persons out in the market with only one goal and that is to tarnish our exceptional reputation by making us out to be inflexible and arrogant. Those that know us will no doubt agree that we are in fact humble and down to earth and will discount such comment as a deliberate attempt at discrediting RFS. These could be competitors who want to raise their image to our level by lowering ours or it could simply be persons who have an axe to grind with us.

Our fee model

Our ‘arrogance’ is typically portrayed in the context of our fee model. RFS probably uses one of the most scientific methods to determine the cost of its services to its clients of service providers in the pensions industry. For any client it should be comforting to know that the services you pay for are determined in a scientific manner. This means that they are fair towards you, first and foremost. Fairness in determining fees is an obligation of any service provider who is a member of any professional association. In our case, top managers are members of a number of different professional associations whose code of ethics obliges them to apply fairness in the determination of their fees. This means the client is paying for what he is getting. Conversely it also means the client is not paying for a service he is not getting. Secondly, a client should be comforted knowing his service provider applies a scientific method to determine the costs of his services as this means the service provider has a sustainable business model.

The fact that RFS has been around as a self-sustaining Namibian organisation for over 17 years now is testimony to the sustainability of our business model. New entrants to the industry may prefer a misguided strategy of buying market share by offering unsustainably low fees. For the client who buys into this, it means one of two things. The service provider will either revert back soon with the scenario of having to close doors or the client agreeing to a fee adjustment or of the service provider in fact closing doors – a nasty situation for any pension fund if it was your administrator.

Would you call this arrogance?

Our business principles

Our ‘inflexibility’ is typically portrayed in the context of our way of dealing with client enquiries on special ‘non-standard’ services. As our slogan goes ‘rock solid fund administration that lets you sleep in peace’, we are very principled in approaching such requests. Firstly, requests must be defined properly so that both parties understand what is required, what the parties’ expectations and obligations are, what risks need to be addressed and how these risks will be addressed. Until all these pre-requisites have been met, trustees may at times experience our response frustrating and overly dogmatic. However at the end of the day, our concern for protecting the interests of fund members and trustees should in the final analysis provide the comfort and peace of mind to our clients that all ‘i’s’ have been dotted and all ‘t’s’ have been crossed and that their risk exposure is consequently minimised. RFS’ reputation speaks for itself!

Would you call this inflexible?

Conclusion

Comments referring to RFS being arrogant and inflexible have to be interpreted in the context of their origin. We do not think they are appropriate. Being a humble, down to earth organisation believing to apply the highest standards of fairness, we invite any client or prospective client to explore with us our model for setting fees for the services we provide.

Our new switchboard number is 061 - 446 000.

Our fax number remains 061 - 231 598.

Our extensions have changed as well. Please download the list of extensions below.

• A nominated beneficiary must survive the member of the fund to qualify for the benefit payable upon the death of the member. This means that the estate of the nominated beneficiary cannot benefit anymore.
• A nominated beneficiary does not acquire any right to a benefit of a member during the lifetime of a member.  It is only upon the member’s death that the nominated beneficiary is entitled to accept the benefit and the fund is obliged to consider the beneficiary in the distribution of a benefit. Until the death of the member, the nominee only has an expectation of claiming the benefit, but has no vested right to the benefit.
•  A nominated beneficiary is only entitled to that portion of the benefit allocated by a deceased fund member to him or her, if there is no dependant and no shortfall in the estate of the deceased member.
•  A beneficiary of a benefit upon death of a fund member must be a natural person. A member of a fund cannot nominate his/her estate as a beneficiary (subject to a narrowly defined exception). The same applies to nominations of Companies and CC’s as beneficiaries. The benefits payable by a fund upon the death of a member shall not form part of the estate of such a member, as per section 37C(1) of the Pension Fund Act. Thus a nomination of a member’s estate as his/her beneficiary does not carry any weight at all in the trustee’s considerations. Benefits are only payable to the estate if the deceased fund member has not nominated any beneficiary and leaves no dependant.

If a fund member nominated a beneficiary found to not qualify as a nominee, such as having predeceased the fund member, the remaining nominees would not be entitled to receive the non-qualifying nominee’s share. The board of trustees is only allowed to pay such a portion of the benefit as is specified by the member. This portion would then have to be paid to the estate of the deceased.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

In this article we will be looking at the alternatives for protecting you retirement nest-egg against short-term market down-turns. In this context it should be appreciated that normally a retiree must apply two-thirds of his retirement capital to purchase a pension, while only one-third may be paid out in cash.

As far as the two-thirds portion of the retirement capital is concerned, a prospective retiree need not be concerned about any short-term down turn in the market. This is so because this capital will be returned to him with investment returns over his remaining life, usually anything from 15 years upwards, a long period during which the market should have recovered again. The down turn will only impact the level of post retirement income while the down turn prevails and this should be for a short term.

As far as the one-third cash portion is concerned, a fund member will obviously be worried about the impacted of any down turn in the markets in which the capital is invested. His retirement planning may be dependent on realising a certain amount in respect of the one-third pay-out, say for paying off the balance on his home loan or on the loan arranged to purchase that last new Benz before heading into retirement. If the N$ 2 million the retiree had hoped for turns out to be only N$ 1.7 million, the shortfall of N$ 0.3 million will mean that a portion of his post retirement income will now have to be applied to pay off the balance on the outstanding debt. How ‘mission critical’ the one-third pay-out is to the retiree, should inform his decision how this portion of the retirement capital is to be invested. How long before retirement a decision has to be taken and what options are typically offered in the market will be examined further on.

Retirement capital is generally invested in the same asset classes no matter what retirement product one is looking at, namely equity, bonds, cash and property. The difference between the most common retirement products lies in the manner in which the returns on the investment in these asset classes are passed on to the prospective retiree. Returns are either allocated directly to the retiree or are allocated by way of a mechanism that resembles the principle of a ‘funnel’. The difference is that in the former method, the return flows ebb and flood while in the latter method a regulated flow passes through the funnel no matter a what rate returns are pouring into the funnel. Of course the funnel serves no purpose anymore should returns dry up totally or flow out as fast as they trickle in and in such event the retiree will experience exactly the same returns under both methods. In the retirement funds industry former method of investing is referred to as market linked investing while latter method of investing is referred to as smooth growth investing or return smoothing.

The following graphs depict the performance of the worst performing prudential balanced portfolio on the Benchmark Retirement Fund platform over the period January 2002 to August 2016, the best performing prudential balanced portfolio and the Benchmark Default Portfolio that are all market linked portfolios and the most popular alternative, the Old Mutual AGP portfolio with a 50% guarantee.

Let’s look at the Graph 1 which depicts rolling 12 month returns. Firstly, it shows that the AGP portfolio commenced in January 2008 when the market was on a steep downward slope and just before its trough in consequence of the financial crisis. One may argue that the first 12 months’ or performance to January 2009, probably even longer, are not representative of the characteristics of the smooth growth portfolio compared to the market linked portfolio. The graph shows that at the worst of times, in January 2009, the worst performing market linked portfolio had a one year return of minus 22%, the Benchmark Default market linked portfolio had a one year return of around minus 8% while the best performing portfolio had a one year return of around minus 3%. At the same time the smooth growth portfolio had a one year return of 10%. As depicted by Graph 1 above, markets have recovered rapidly from this trough as the result of the quantitative easing program.

One can conclude from this graph that the smooth growth portfolio has outperformed some of the market linked portfolios over 1 year periods at times by around 5% and underperformed at other times by up to 20%. The smooth growth portfolio has thus protected the prospective retiree’s one-third by around 30% over a one year period if compared to the worst performing market linked portfolio, by around 20% compared to the Benchmark Default Portfolio and by around 15% compared to the best performing market linked portfolio.

If we now look at the same portfolios but over rolling 5 year periods as depicted by the Graph 2. This graph shows that the smooth growth portfolio outperformed the market linked portfolios from commencement to late 2013 and underperformed since then. To what extent the initial outperformance was the result of perfect timing of the introduction of this portfolio, history will show. Going by the principles and assuming Old Mutual will be able to produce average returns over the long-term one should expect this portfolio to underperform the average manager because of the cost of the guarantee it offers.

Graph 3 depicts the cumulative return of the smooth growth portfolio and the market linked portfolios since 1 January 2009

Conclusion

From these graphs the smooth growth portfolio relative to any prudential balanced portfolio can add value over the short term (+/- 12 months) if the main concern is to avoid negative returns on the commutation. Tracking the worst performing market linked portfolio’s performance over rolling 12 months, it underperformed the smooth growth portfolio by 30%, with a performance of – 22%, when the bottom fell out of the market but outperformed smooth growth portfolio by 25% when the market recovered soon afterwards. Given that most members would have to arrange a pension with two-thirds of their retirement capital their highest underperformance risk based on the statistics of the worst performing prudential balanced portfolio is then 10% (30% *1/3) while they risk losing outperformance at the same time of 8.3% (25%*1/3), at times of extreme volatility.

Given that a fund member invests in the investment management skills of the provider of the smooth growth portfolio only, sacrifices returns of 0.2% p.a. to pay for the guarantee and sacrifices the flexibility of moving between asset managers to improve performance, a member may prefer to retain greater flexibility. This would however require the member managing the risk against short term negative returns differently. Within most funds a member should normally know 12 months ahead of time that he intends to go on retirement. The member can then move to the cash portfolio 12 months before retirement at times of high market volatility in respect of the one-third retirement commutation. Through preservation, the prospective retiree should also be able to defer retirement to ride out any trough in the market in respect of his one-third commutation at the time of planned retirement.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

We were recently approached with a question with regard to the following scenario:

The fund member who is 48 years old now, was declared disabled in 2008 and is still receiving a disability income from the Fund’s insurance company. The member decided that he does not want to be on disability anymore and that he wants to terminate his membership and receive his fund credit to go and start a business. Per the rules, early retirement age is 50, normal retirement age is age 60 and late retirement is age 70.

The two questions arising from this scenario are:

• Can the Trustees prevent and or enforce the rule and force him to remain in the fund until such time that he can exit and what are the consequences?
• Can they allow the member to terminate his membership to the fund as he wishes and what will be the consequences thereof?

In finding an answer to these questions, one has to study the rules of the fund and these will be different from fund to fund although some of the principles will mostly still be relevant.

1. Firstly, the definition of ‘employee’ and of ‘membership’ in fund rules typically require that for every new employee fund membership shall be a condition of employment of all persons in the permanent and full-time service of the employer who have not yet attained normal retirement age.
2. Secondly rules would typically direct that membership terminates only when the member ceases to be an employee, unless he/she is in receipt of a disability benefit, or when he or she becomes entitled to any benefit in terms of the rules.
3. Thirdly, the rules typically then provide for withdrawal benefits, retirement benefits, death benefits and disability benefits. For this scenario the rules on retirement benefits, resignation benefits and disability benefits must now be considered to establish whether they specifically allow or prohibit a member in receipt of a disability income to withdraw from the fund voluntarily.
   1. The withdrawal benefit would typically apply if a member terminates service before normal retirement age and is not entitled to any other benefits under the fund. Unless elsewhere specifically allowed, a member in receipt of a disability benefit would thus not meet this precondition.
   2. Retirement benefit would typically be available when a member reaches normal retirement age, in the event of voluntary early retirement as from an earlier age and only with the employer’s consent, in the event of ill-health early retirement as from any age, again only with the employer’s consent due to ill-health, or in the event of late retirement after normal retirement age, mostly also only with the employer’s consent. Only one of these alternative retirement avenues are thus not subject to employer consent, being normal retirement, where it is the member’s right to retire.
   3. Finally, rules typically provide for a disability benefit to a member who becomes disabled before normal retirement age provided that the claim has been accepted by the insurer. The rules mostly further provide that contributions towards the fund will continue for as long as the member is in receipt of a disability benefit and he/she will consequently remain a member of the fund for as long as the disability benefit is paid by the insurer and until the member becomes entitled to any other benefit in terms of the rules.

In terms of paragraph 2, membership of a member in receipt of a disability benefit can typically only terminate when he/she becomes entitled to a retirement benefit or death benefit, but not upon withdrawal (resignation). Since the member is only 48 years old and still below normal retirement age, he is not entitled to retire early in terms of the relevant rule due to him being ‘under age’. This leaves as only potential early exit option, retirement due to ill-health. This rule typically requires employer consent due to ill-health. In our opinion, this rule cannot be used as the member is not employed by the employer anymore, although this would have to be confirmed by reference to the conditions or contract of employment. If the definition of employee in the fund rules reads similar to that in 1 above, it would clearly preclude a person on a disability benefit to remain an employee, stating that the person must be either in the permanent full-time employment or must be employed on a predetermined contract period. If the person is no longer employed by the employer there is no employer to consent to the person’s ill-health, and early or late retirement for that matter. We would further argue that even if by some remote deduction the person could still be regarded an employee of the employer, the intention of the early ill-health retirement rule cannot be to allow a member to employ this clause where the rules still provide a benefit for the very reason of ill-health. This member in most cases then also cannot proceed on early retirement nor retire late, as this would also require employer’s consent, where the disabled member does not have an employer anymore who could consent.

Based on the above scenario the member in most likelihood cannot exit the fund prior to reaching normal retirement age. The situation would be different once the insurer ceases payment of the disability benefit.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

One of our pension fund clients recently raised the question whether or not a member can nominate a church as beneficiary to his/her death benefit.

An article in Personal Finance, 1st quarter 2016, sets out two diverging views on this topic. The Pension Funds Act clearly does not consider the estate as a nominee, the estate only being referred to as the default recipient in the event of there being neither dependants nor nominees. In our opinion a nominee cannot be a non-natural person based on the definition of ‘nominee’ per Oxford English dictionary that reads “person who is nominated for an office, a position”. We believe that only a natural person can be nominated to an office or a position. In the other definitions of derivatives of ‘nominee’ the dictionary never refers to a non-natural person. Similarly, the definition of ‘person’ also specifically refers to a ‘human being’ in one instance but nowhere to a legal or non-natural person. We agree with the assertion in the attached article that the intention of section 37C is not to provide for inheritance but rather to provide for social objectives of providing for dependants and nominees that survive a deceased member. Only if neither dependants nor nominees exist would the benefit fall into the realm of inheritance through having to be paid into the deceased’s estate.

The answer is thus not clear-cut. In the first instance the trustees must ascertain that the needs of all dependants have been established and will be addressed by the proposed death benefit distribution. Only if this is the case, the trustees can consider any nominated beneficiary who is not a dependant, particularly if it is a non-natural person. If this has been achieved to the satisfaction of the trustees, we would suggest that the trustees obtain a written acceptance of the proposed distribution from the natural beneficiaries designated by the deceased before finalising the distribution that includes an allocation to the church, to mitigate the risk of a dependant or a nominated natural person challenging the payment to the church.

But what about the IT Act prescribing that an annuity must be paid if needs be to the estate?

As we commented in a previous newsletters with reference to Inland Revenue Practice Notes 5 of 2003 and Practice Note 1 of 1998, the former directs that a minimum of 34% of the total capital available upon death in a defined contribution pension fund must be paid in the form of an annuity (and note this proportion is applied at benefit level and not at beneficiary level) while the latter prescribes that no further commutation is allowed of an annuity upon death of the annuitant.

The definition of ‘pension fund’ in the IT Act that Practice Note 5 of 2003 relies upon, states that ‘… the fund is…established for the purpose of providing annuities for employees on retirement from employment or for widows, children, dependants or nominees of deceased employees, or mainly (interpreted to mean 51%) for the said purpose and also for the purpose of providing benefits other than annuities for the persons aforesaid (i.e. the remaining 49%).

So here the IT Act prescribes that annuities must be paid to inter alia to nominees who according to our interpretation of Section 37C of the Pension Funds Act cannot be a non-natural person, i.e. a trust or an estate for that matter. Does this now mean that where the deceased has left neither a dependant nor nominated a beneficiary, the fund cannot rid itself of its obligation to pay a benefit in the event of death of the member or pensioner?

The crucial difference between the Pension Funds Act and the IT Act is that the Pension Funds Act does not define ‘person’ and one has to resort to the dictionary to establish its meaning. The IT Act in contrast does define a person as  ‘…includes any trust and the estate of a deceased person…’.  So the concern that a fund cannot pay an annuity to an estate is evidently unwarranted.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Clients often appear to be irritated about our charging and fee philosophy, more particularly with the principle that while we are usually paid a retainer fee, certain services attract a so-called “non-standard service fee”. In one instance this practice has even been discredited as being unprofessional! Typically, clients take the position that all fund management services must be covered by the ‘retainer’ fee.

The Code of Ethics and Professional Responsibility of the Financial Planning Institute defines a pensions practitioner’s practice for determining fees for professional services. It requires of a professional member of the Institute to “..explain in writing, the precise range of professional services that the fee is intended to cover, the basis on which the fee is computed…” and that “…the main criteria are fairness and equitability for the client and the member…”.

This means that a professional service provider should not charge for work it has not executed. By implication, the principle requires a service provider to charge for services carried out.

The services we carry out in return for a ‘retainer fee’ agreed upon with our clients, are clearly defined in our service level agreement, and in addition, our service level agreement clearly demarcates our mandate from that of other service providers and also clearly defines services we will provide on an ad-hoc basis as and when required, for which we would then raise an additional “non-standard service fee” as agreed upon with our client in advance. If a service provider were to include all conceivable services that a fund might require in the course of time, clearly provision would have to be made for the unknown requirement for ad-hoc services. This would entail charging for services not rendered on an on-going basis and applying the over recovery to recover the cost of ad hoc services should they be required at any time in future. In our view this is inconsistent with the Code of Ethics and Professional Responsibility.

An analogy ‘closer to home’ for most, is building a house. The only two possible arrangements with the contractor consistent with our professional obligations are, firstly that where you add to the original plans you pay extra and where you deduct you get a price reduction. Alternatively, you agree with the contractor that whatever you desire to be changed must be changed without reference to the costs and that the contractor then informs you only upon completion, what the actual cost is. At this stage we apply the former approach which we believe is the right approach.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Inland Revenue many years ago issued Practice Note 1 of 1998 in response to the advent of new investment linked annuities, or also referred to as living annuities. In short this practice note prescribes that not more than 20% and not less than 5% of the capital at the start of every year may be paid in the form of an annuity. It also prescribes that in the event of death of the annuitant, no further amount may be commuted for a cash lump sum and that the balance must be paid in the form of an annuity over no less than 5 years. It goes without saying that this annuity is taxable.

Defined contribution pension funds of course also place the emphasis on the retirement capital retaining its identity as the property of the fund member. Where such fund provides for members converting the capital to an annuity within the fund, rules typically attempt to retain the ‘ownership’ notion by availing the remaining balance upon death to the deceased pensioner’s successor/s. Where this occurs, the principles laid down in practice note 1 f 1998 also apply.

But what about retirement annuity funds offered by insurance companies? There appears to be some difference of opinion in the market whether or not the retirement annuity fund can also affect an accelerated annuity of the remaining balance upon death over 5 years. We are of the opinion that once retirement capital has been transferred to a Retirement Annuity Fund, it must under all circumstances be paid in the form of a ‘life annuity’ and cannot be accelerated independent of where the capital derived from. This opinion derives from the definition of ‘retirement annuity fund’ in the Income Tax Act that categorically states that the fund may only pay an annuity for life of a beneficiary. Clearly accelerating the payment would not meet the ‘for life’ requirement.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Stand-alone funds employ service providers who are paid in accordance with the service level agreement entered into between the fund and the service provider. But this is mostly not where things end. Funds often also remunerate their trustees and boards of trustees often incur discretionary expenditure on trustee compensation, trustee training, trustee meetings, travelling, entertainment, communication – going as far as employing staff renting office or investing in office space, effectively running a business.

Should trustees be concerned about all these costs their fund incurs? When considering administration fees and fees for other services provided by service providers, it is common cause for trustees to pay close attention to these costs. These costs also can generally be benchmarked to some extent if trustees bear in mind that barring auditors and actuaries, no standards exist as to what the consultant’s or the administrator’s services must entail as the result of which it will be difficult to compare apples with apples.

So what about the other costs incurred at the discretion of the trustees, particularly any costs incurred on and in respect of the trustees themselves? Undoubtedly, this area becomes a lot trickier but is the area that the trustees should probably be even more concerned about than the costs of services acquired in the ‘open market’. Trustees should not be complacent in this regard in the light of their fiduciary duties and the personal liability they may face should any court of law rule that trustees acted negligently. Those trustees that attended the recent trustee training seminar organised by Elite Consulting and conducted by Peter van Ryneveld, will remember that Peter cautioned delegates of trustees misusing their powers and incurring excessive expenses.

The Namibian pension fund industry being as small as it is, it is difficult to determine any norm in respect of what is reasonable and what is well over the top when questioning the discretionary trustee expenditure level. From our data base the following statistics should assist trustees to measure their fund’s expenditure levels, bearing in mind that the larger the fund the lower the expenditure levels should be:

*  The industry average for 2015 according to the Namfisa statistical bulletin was 0.58%.

Note that these amounts include the cost of all external service providers as well as trustee discretionary expenditure but exclude the cost of investment management.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Unlike the SA equivalent, the Namibian regulation 28 does not offer a window period for correcting any breach of the limits set out by the regulation. It does not recognise the difference between an active breach, i.e. where the asset manager or fund have allowed cash flow to result in the breach of the limit, or a passive breach as the result of  market value movements or portfolio in- or outflows.

When questioned about its position on passive breaches at a recent industry meeting NAMFISA responded rather lapidary that such breaches of regulation 28 limits must be corrected within a reasonable time “to avoid excessive penalties” and encouraged funds to apply for exemption where this happens.

Funds in breach of a limit will thus incur a penalty unless the Registrar in his discretion waives the penalty. It is not clear whether this could imply that a specific breach at a specific point in time is condoned, or that a general exemption is granted for a specified period and whether the exemption will be from the date of the breach or from the date of the application for exemption.

To ‘play safe’ and to avoid having to apply repeatedly , if this is what any exemption granted would require, and to avoid penalties, funds  with segregated portfolios will have to consider instructing their asset manager/s not to operate too closely to the limits. The question is what margin to provide for? Just considering the total offshore exposure, running an exposure of 30% as opposed to the maximum of 35% would only protect against a market movement of 15%, not an exceptional move by any means considering that it can arise as the result of currency movement and/ or local or offshore market movement. Setting a cap that diverges from the portfolio manager’s own view would present a problem where the portfolio manager was given a fully discretionary mandate, as the mandate is immediately not a fully discretionary mandate anymore.

Funds with pooled portfolios face a different challenge as they cannot influence the investment decisions of the portfolio manager yet are still required to apply for exemption in their own capacity in the event of a breach if they want to avoid incurring a penalty –which of course will not be a given considering the discretion of the Regulator.

Unfortunately, as the result of the current regulatory environment, asset managers and funds will for all intents and purposes be obliged to move well below the limits to avoid any penalties, which is not in the interests of members.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

A number of retirement arrangements have been set up in the past capitalizing on a 'loop hole' in the Act. This allowed employers to deduct premiums paid in respect of life policies taken out on the lives of employees (e.g. funeral policies, key man policies, group life schemes outside an approved fund etc.). The 'loop hole' allowed the policy proceeds due in the event of death of any employee to be paid to the employee's dependents or nominees tax free. Income Tax Amendment Act 15 of 2011 effectively closed this loop hole.

Policy proceeds upon the death of an employee are now taxable in the hands of the employer, if the employer claimed any premiums in respect of the relevant policy for tax purposes, in the past. An employer who maintains such a life assurance scheme needs to introduce a new employment policy to define its intention regarding the impact of tax on the gross proceeds. i.e. will the employer carry the cost or will the cost be passed on to the beneficiary/ies? If the tax is to be recovered from the gross proceeds before affecting payment to any beneficiary/ies, procedures and controls need to be introduced to ensure that the gross proceeds are reduced by the tax effect before paying a benefit.

If the employer recovers the premium from the employee, the employee and his/her beneficiary/ies will not be taxed on the policy proceeds, the flip side of course is that the employee will not have been able to claim the premiums as an expense against his/her taxable income.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

The position of principal officer is a statutory designation. It is the equivalent of the public officer companies were required to have in terms of the old Companies Act. The principal officer is essentially the physical embodiment of the intangible legal person, the pension fund. As such the principal officer has a limited number of statutory duties:

• Signing of certain documents, together with a trustee/ chairperson of the board of trustees, furnished to or required by the Registrar;
• Furnishing of additional particulars required by the Registrar in relation to a rule amendment;
• Submission of rule amendments and consolidated rules to the Registrar;
• Sign the prescribed certification of the valuator's report together with the trustees and that the report was sent to every employer participating in the fund;
• Submit to the Registrar under cover of a letter signed by him, the annual financial return of the fund;
• Sign any appeal to the Minister against a decision by the Registrar and lodge with the Registrar;
• Be the correspondent of the Registrar with regard to matters relating to the fund;
• Execute any function assigned to him in terms of the rules of the fund;
• NAMFISA requires the principal officer to sign off the SIH and ERS returns funds are required to submit on a quarterly basis.

In terms of the definitions to the regulations of the Pension Funds Act, "principal officer means the principal executive officer referred to in section eight of the Act who may be a member of the body administering the fund." There is a separate definition of 'person managing the business of the fund', in the Namibian context this is typically the board of trustees and not the principal officer.

And that's it as far as the duties and responsibilities of the principal officer go. Unless the engagement of a person to serve as principal officer requires the person to provide other specialist services, a principal officer does not need to be a specialist.

From our experience, employers are increasingly moving the administrative burden of their pension fund to the fund itself as the result of increasing regulatory demands on funds. It is thus the administration of the pension fund business not attended to by the fund administrator and other service providers for which funds nowadays require additional resources. This covers liaison between the employer, the fund and service providers on administrative matters. The technical matters requiring expertise that funds would normally require are generally covered by the mandate of one or the other fund service provider.

Where a fund employs an independent principal officer, it must ascertain that there is neither a gap nor an overlap between the mandate of the principal officer and that of the consultant and this is not an easy task as both functions are not well defined in our industry and differ from one service provider to the next.

Trustees are often not clear about their expectations and the roles of the principal officer and the other service providers. These funds end up either with another cost layer and confused roles of their service providers, or with a principal officer that assumes the function of the consultant.

The approach should thus be for funds to clearly demarcate up front the boundaries between the role of the principal officer the consultant and the administrator to avoid gaps and overlaps that draw the trustees into arguments and mediation between different service providers and make it difficult to place responsibility.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

The principle of defined contribution retirement funds is that members build up their individual retirement capital from their own contributions and from a portion of the employer's contributions, together with investment returns. In contrast with defined benefit funds where the pension benefit is pre-defined and the employer carries the risk of under contributions and poor investment returns, a member of a defined contribution fund carries these two risks and is dependent on the capital that has built up to retirement to provide income in retirement. The member is the owner of the capital and many defined contribution funds reinforce this ownership principle by offering a refund of the balance of a pensioner's retirement capital in the event of the pensioner's early death following retirement.

Two questions arise. Firstly, does the Income Tax Act make provision for this type of benefit? Secondly, what does this benefit represent and how should this type of benefit consequently be taxed?

Turning to the first question, the Income Tax Act, in the definition of preservation fund states categorically that "...if a person dies after he or she has become entitled to an annuity, no further benefit other than an annuity or annuities shall be payable to such person's spouse, children, dependants or nominees..." This does make sense as a retiree had the option of having one third of the retirement benefit paid out in cash tax-free, as a once-off concession.

Although the definition of 'pension fund' in the Income Tax Act does not contain the same provision, this is probably not the intention of the legislator. This intention is also reinforced in Practice Note 1 of 1986 that deals with flexible annuities. In this practice note it is categorically stated that no further commutation of capital may be made upon the death of the pensioner. Any remaining capital must be paid out as an annuity over a minimum term of 5 years.

Turning to the second question, it appears logical that even if the Income Tax Act does not prohibit a further commutation of any amount upon death of the pensioner for a lump sum payment, such lump sum in effect represents an accelerated payment of what would have been paid in the form of annuities had the pensioner not passed away. Such lump sum payment would thus be fully taxable. Presumably Inland Revenue would not object to receiving its tax dues immediately and calculated on a higher taxable amount as opposed to receiving its tax dues on smaller monthly annuities over a period of time.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

We believe that the answer to the question whether pension fund capital at retirement can be used to purchase a member owned annuity for a retiring member from an insurer, as opposed to purchasing a fund owned annuity for the benefit of the member from another approved fund, lies squarely in the domain of NAMFISA. NAMFISA has recently informed us that the issue has proved rather complex. It has consulted on several occasions internally, with the insurance regulators, with the tax authorities and with insurance providers. It was pointed out that blurred lines exist between insurance providers and pension funds internationally, also with regulators from around the world.

After all these consultations NAMFISA still finds very diverging views amongst affected parties. Due to the implications that this will have on two industries, it does not want to rush the process but rather to ensure that is has interrogated all eventualities before arriving at its position. As such, NAMFISA is looking into engaging external legal counsel to advise on this matter.

In the light of the fact that the matter is not resolved yet, we caution pension fund members and insurance company intermediaries on the risk that the purchase of a member owned annuity from pension fund capital at retirement may pose to the retiree. Should NAMFISA conclude that such transactions are not consistent with the Pension Funds Act, all persons who have entered into such a transaction are facing the prospect of being presented a tax bill for tax that was to have been paid at the time of retirement. Should this realise, the member is furthermore facing penalties and late payment interest.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

‘Educational policy’ is defined as - “An insurance policy taken out by a tax payer for the exclusive and sole purpose of making provision for future education or training of a child or step-child of the taxpayer contemplated by section 16(1)(ab)(ii).”

Furthermore paragraph 11A of schedule 2 of the Act regulates employees’ tax and the employer’s administrative responsibilities. In terms of this section:

“1. An employer must issue a declaration to the Minister in the prescribed form  within 30 days following the month in which any amount received by or accrued to a taxpayer under or upon the maturity, payment, surrender or disposal of an education policy to which paragraph (dC) of the definition of “gross income” applies.
2. If an employer fails to submit a declaration in terms of subparagraph (1), he or she is liable to pay a penalty equal to 10 percent of the amount received or accrued to the taxpayer under or upon the maturity, payment, surrender or disposal of the policy.
3. Where good cause is shown in writing by the employer liable for the payment of a penalty under subparagraph (2), the Minister may remit a penalty in whole or in part.”

In order for an employer to avoid being penalised as the result of a policy benefit having accrued or having been paid to an employee, where one of your staff members claims premiums towards an education policy against the taxable income administered by your company, we suggest that you consider the following:

1. the employee should provide a copy of the policy to prove that the policy complies with the definition per above;
2. your HR/payroll department should diarise the maturity date of the policy and to introduce a strict routine to follow up on maturity date;
3. the employee should sign an undertaking, to inform HR/payroll department immediately upon cashing in the policy proceeds and to indemnify your company against any penalty as contemplated in section 11A of schedule 2, should he/she fail to inform your company immediately upon having cashed in the policy proceeds.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

For the peace of mind of trustees our safety net offers you:

• Fidelity cover of N$ 5 million, excess of N$ 250,000 1 July 2015 to 30 June 2016, Western National Insurance Company;
• Professional indemnity cover of N$ 50 million, excess of N$ 250,000 1 July 2015 to 30 June 2016, Western National Insurance Company;
• Directors' personal liability cover of N$ 5 million per director, 1 November 2015 to 31 October 2016, Santam;
• Full-time internal audit, compliance and risk management function supported by 2 independent chartered accountants on a part-time basis;
• Off-site disaster recovery data centre;
• Continuous data and system replication;
• On-site back-up generator;
• Secure IT production centre;
• High availability virtual server environment;
• 63 full-time staff focussed on fund administration only;
• Average of 14 years relevant experience per employee;
• 23 holders of a diploma or certificate;
• 17 graduates;
• 5 honours degrees;
• 7 CFP® practitioners;
• a track record second to none;
• and more...

How much is good governance worth to you as a trustee – can you afford to pay less for compromising on any of these credentials?

In earlier newsletters we dwelled on what the purpose of a pension funds is (2015-06, 2015-07), namely to provide for the needs of its members. We suggested that the most important needs of pension funds members are –

• Death;
• Disablement; and
• Retirement.

The name ‘pension fund’ in the first instance suggests that the fund should be about providing for a pension upon retirement. However the other two key needs that should be considered is death and disablement. Besides the fact that members and their beneficiaries are often seriously affected as the result of death or disablement of the member, employers also have a strong moral compulsion to ensure that provision is made for such life changing events mostly by means of the company’s pension fund.

Over the years, pension funds have evolved to provide for these key needs and employers who do not offer a pension fund or whose fund does not provide for these key needs are at a great disadvantage vis-à-vis those that do offer provision for these events in a competitive labour market.

What is a dread disease benefit? Essentially it provides for sickness conditions that cause the employee to be unable to follow his occupation. Conditions covered normally are stroke, heart attack, organ failure or transplant, blindness, paralysis, loss of limbs etcetera.

Usually the dread disease is an accelerated lump sum payment of the lump sum benefit payable in the event of death to assist the employee with the high costs typically associated with such a condition.

We believe that dread disease benefits are a key need of staff at all levels and offer an important competitive advantage to those employers whose pension fund offers these benefits to their employees. Employers whose fund does not offer the dread disease benefit should seriously consider introducing this benefit.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Section 37 A of the Pension Funds Act was amended through the Maintenance Act, section 50(2) by replacing the reference to “…Maintenance Act, 1963 (Act No 23 of 1963)…” with Maintenance Act, 2003 (Act No 9 of 2003)…”

Section 28 (5) of the Maintenance Act stipulates “Notwithstanding anything to the contrary contained in any law, any pension, annuity or compassionate allowance or other similar benefit is liable to be attached or subjected to execution under a warrant of execution or an order issued or made under this Part in order to satisfy a maintenance order.”

Thus, an order made by a maintenance court, attaching any pension fund benefit of a member must be acted upon by a pension fund when we serve a warrant of execution. The question that begs to be answered though is whether this refers only to recurring payments, which we believe it does, or to lump sum pension fund benefits as well. Anyone prepared to venture an expert opinion?

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

The regulator’s expectations of funds in terms of governance have been increasing steadily and it is exerting pressure on funds through its so-called enforcement ladder. This enforcement ladder has 5 stages of intervention:

1. No significant problems;
2. Early warning;
3. Risk to viability or solvency;
4. Future viability in serious doubt;
5. Entity not viable or insolvency imminent.

Funds will be classified into a stage of intervention based on NAMFISA’s supervisory and regulatory activities, such as on-site inspections. Each stage of intervention envisages increasing levels of intervention and reporting and compliance requirements by Namfisa. Download the circular here…

In our experience from past on-site inspections the more common issues raised by Namfisa are:

• Fund does not have an investment policy that makes provision for a strategic asset allocation;
• Fund does not carry out trustee performance appraisals;
• Fund does not have a code of conduct;
• Fund does not have a risk management policy;
• Fund does not have a conflict of interest policy;
• Fund does not have a communication policy;
• Fund rules do not set out how unclaimed benefits will be disposed of;
• Fund rules to not provide for a term of office of the trustees;
• Service provider agreements are not in place.

Do avoid being sucked further into NAMFISA’S enforcement processes. Trustees should ascertain that their fund meets at least all the above requirements.

Download a generic investment policy statement here…

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Over the past 12 months a total of 8 staff joined, compared to 10 over the course of the preceding year. Erica Hipondoka started 1 October 2014, Chanelle van Wyk and Theofilus David started 15 January, Joleen Farmer started 1 February, Elbie Taljaard rejoined us 1 March, Faith Gamxamus joined 1 April, Elaine Blom joined 1 May and lastly, Lilia Cabatana who rejoined on 1 November. We once again extend a hearty welcome to all and look forward to their contribution towards our slogan of “rock solid fund administration that lets you sleep in peace”!

During the past 12 months we also celebrated a few noteworthy anniversaries -

5 year anniversaries were celebrated by Sylvia Kessler and Yolinde Titus; 10 year anniversaries were celebrated by Drolina Rochter and Alida Venter, and, since we have only been going for 16 years, we can only celebrate one more anniversary for the next 4 years –  the 15 year anniversary. This was celebrated by Frieda Venter with only Charlotte Drayer having passed this milestone before her! We are deeply indebted to these employees for the years they have dedicated to RFS, for the years they have helped to carry the company and have contributed towards building the name and reputation of the company!

To our clients of course, we are sincerely grateful for your loyal support over the past so many years! We hope that we have been able to let you ‘sleep in peace’ over your pension fund administration as we unrelentingly pursued our efforts to provide ‘rock solid fund administration’ to your funds. We believe that the pension fund administration market in Namibia is too small to carry more than 2 viable fund administrators. Having built up credentials and an unrivalled reputation of service excellence over the past 16 years, our track record speaks for itself and should stand us in good stead to be one of the two administrators to survive. However, we will not take this for granted and will not be complacent as things are changing. Most of our current clients moved to us having been very dissatisfied with their previous service provider and remained loyal to us for 10 years and longer. In the meantime the decision makers of 10 years ago are mostly no longer around and today’s decision makers cannot call on th is negative experience with our predecessor administrators and are more inclined to plunge into a new experience.

In February RFS was awarded the PMR Diamond Arrow award as best in the pension fund administrator category for the third year running, once again underscoring the fact that we must have done something right in our market.

In the second half of the year we started with a process to change over to a new fund administration system that we hope will be a game changer in our market and will give us a significant technological and business advantage in the market. This system offers significantly more features than our current system as well as significant efficiencies. We are all looking forward to the implementation of the new system early 2016. As anyone will testify who has been involved in the introduction of a new computer system, the conversion will not go without its challenges and we hope that our clients will bear with us during the conversion phase. We are convinced that this conversion will prove to have been to their benefit.

The development of Benchmark remains one of our priorities. This is our anchor client and the flagship umbrella pension fund, offering a unique range of applications appropriate for a broad spectrum of persons from the employed individual to large companies, from very basic to fully comprehensive retirement provision. Provision has also been made in the rules of the fund for new product lines. A number of these product lines are currently not available in the market and will be a first in Namibia. Membership of Benchmark has grown from 8,300 at the beginning of 2015 to currently 8,900 members and assets have grown from N$ 1.6 billion at the beginning of 2015 to currently N$ 1.8 billion. Its assets are likely to exceed N$ 2 billion by the end of next year.

In September we arranged a lunch for a number of our key clients at which occasion our keynote speaker, entrepreneur, author, lecturer and futurist Dr Graeme Codrington delivered a highly riveting presentation on ‘tomorrow’s world today’. He spoke on the key factors that will influence the world of work as drastically as mankind has never experienced before. We believe that delegates gained tremendously from the insights Dr Codrington shared with the audience and look forward to welcoming clients at the next client lunch where we will present another high caliber speaker.

Over the past year we have installed a back-up computer server at BCX offices which mirrors the computer server at our offices on a continuous basis and should once again give clients the peace of mind that RFS is leading the industry with regard to clients’ data security and disaster recovery. And of course, our leadership will also be changing. Charlotte Drayer reached retirement last year and is now fulfilling a different role, while her former responsibilities were taken over by other persons in the company. So will the role of our managing director be changing slowly as Marthinuz Fabianus while gradually take over this responsibility.

Our retail business unit must be established properly to provide service to our existing client base. The size of our organization demands that we have an effective risk and compliance management and internal audit function. These are challenges for 2016 and beyond that are in our control. There will be challenges outside our control mainly with regard to the statutory and regulatory environment we are operating in. NAMFISA having more than doubled its staff from the beginning of 2013 to now around 150, unquestionably has lots and lots of capacity to put pressure onto the industry and RFS. To cope with these increasing demands service providers such as RFS will probably be forced to increase their staff complements in line with that of NAMFISA.

With this perspective, we would like to once again express our sincere appreciation to our clients for their support! We are looking forward to renew our commitment to you in 2016 and the years to follow! We hope everyone will find the time over the festive season to relax properly, to regenerate and to return to ‘the coal face’ in the New Year full of excitement and energy!

Tilman Friedrich – Managing Director

The administrator of a fund is the custodian of the financial records of each member of the fund and of the fund as a whole. It is the financial manager and the accounting department in one person. Defective execution of the administrator’s responsibilities can expose the trustees individually and severally to the risk of liability for any losses incurred by a member or by the fund. In SA trustees were already held personally liable for not taking their fiduciary duties seriously. Besides this risk, any doubt that employees may develop about the reliability of information maintained by the fund administrator can lead, and has in the past led to industrial action by employees. This is when it can really become expensive for an employer.

In Namibia, there are currently no legal impediments for offering services as fund administrator. How can a board of trustees then be comfortable with the credentials offered by their administrator and how can trustees weigh up the cost of administering their fund against the risk mitigation factors their administrator offers?

Justifying their decision based purely on costs, a board of trustees recently expressed its view that the fund does not need to drive an expensive car but can also drive a cheap car. But is this an appropriate logic when you are dealing with trust money that represents the retirement nest egg of hundreds of members? We certainly believe this argument will not stand any board of trustees in good stead should their judgement ever be placed on a test bench.

Good governance comes at a cost but should at the same time serve to mitigate the risk a board of trustees faces. Applying proper risk management principles a board of trustees should really determine the net cost of the service provider, which is the cost charged to the fund minus the quantified benefit of any additional risk mitigation offered. Comprehensive and transparent reporting is the most important tool trustees can rely on to monitor the state of administration of their fund.

A due diligence questionnaire for fund administrators that trustees are duty bound to employ before appointing an administrator, should cover the following key areas:

1. General Firm Information
   a)    Any business interests unrelated to fund administration?
   b)    Any historic payment or business defaults of the business?
   c)    Ownership continuity?
   d)    Ability to manage the fund?
   e)    Competitive advantages?
   f)    Client monitoring policies?
   g)    Fraud and corruption protection mechanisms?
2. Team
   a)    Any known conditions (health, financial, litigation, personal, etc.) of any of the Firm’s Principals that might influence their ability to execute their duties to the Firm?
   b)    Has a “Key-Person” event occurred in the Firm’s history?
   c)    Any significant past or prospective staff departures (partner or director-level employee (or higher) with more than five years of history with the Firm)?
   d)    Shared work history of team?
   e)    Recruitment plans and procedures?
   f)    Staff retention and training, including historical experience and internal promotions?
   g)    Qualifications and experience of staff?
3. Alignment of Interests
   a)    Any of the Firm’s Principals not invested in firm?
   b)    Compensation structure?
4. Market Environment
   a)    Business opportunities?
   b)    Competitors?
   c)    Impact of changes in environment?
5. Governance
   a)    What structures in place?
   b)    Monitoring and enforcement of policies?
   c)    Historic, current and potential conflicts of interest in firm?
6. Risk/Compliance/ESG
   a)    ESG risks identified and monitored?
   b)    Compliance requirements defined and monitored?
   c)    ESG policies in place and monitored?
7. Track Record
   a)    Any past failures?
   b)    Track record?
   c)    Reputation?
   d)    Expert references on state of data (e.g. actuary)?
8. Accounting/Valuation/Reporting
   a)    Internal audits executed?
   b)    Standard of reporting package?
9. Legal/Administration
   a)    Past criminal or administrative proceedings or investigations?
   b)    On-going or pending litigation?
   c)    Counter party risk management?
   d)    Business software?
   e)    Disaster recovery procedures and facilities?
   f)    Indemnity insurance?

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

As most retirement fund stakeholders will know by now, all pension funds are required to invest a minimum of 1.75% and a maximum of 3.5% in unlisted investments by latest 30 September 2015.

The way our legislation (regulation 29 of the Pension Funds Act) has been structured, such statutory investments by pension funds have to be done via a special purpose vehicle (SPV) which must be either a trust or a company and has to comply with detailed statutory requirements over and above those that in any event already apply to companies and trusts. For all intents and purposes the SPV is similar to a unit trust, the much more common vehicle for the individual investor. It pools capital from many different investors (pension funds and other investors) and uses the capital received to invest in unlisted investments.

Similar to unit trusts that have to be managed by a unit trust management company, an SPV has to be managed by an unlisted investment manager (UIM) that has to comply with detailed statutory requirements. The structure of SPV/unit trust managed by a UIM/ unit trust management company is intended to protect the interests of the investors. The capital of investors is ring fenced and the misfortunes of the manager will not affect the moneys of the investors, although poor investments made by the SPV will produce poor returns for the investor. Usually the investments made by an SPV or a unit trust are spread widely amongst different investment objects so that the demise of one investment object will not wipe out the investors capital even though it will impact negatively on his returns.

To put unlisted investments into a more comprehensible perspective, let's first look at where the commonly used unit trusts typically invest. They commonly used unit trusts invest in what is referred to as 'conventional asset classes' such as shares, property, bonds, treasury bills and cash. Investments other than cash and treasury bills are mostly listed on an exchange which means that prices can be determined easily by referring to the relevant exchange where the asset is listed. These exchanges are local as well as off-shore exchanges.

Unlisted investments in contrast are what the term says, not listed on any exchange which means that prices cannot be obtained from an exchange. In practice it is very difficult to determine the prices and it requires experts to derive at what they will determine to be the fair value of the investment. If such an investment were to be sold at valuation date, it is unlikely that the investor would actually obtain the price at which the investment was valued. Of the SPV's that have been approved by Namfisa to date, some invest in shares of companies not listed on any stock exchange, some provide loans to companies and other entities such as municipalities and or invest in debt instruments (i.e. bonds) issued by companies and institutions.

One of the advantages of unit trusts investing in listed companies and other listed debt instruments is that prices are readily available and can be determined exactly on a daily. When one investor invests in the unit trust while another investor withdraws an investment from a unit trust, each investor pays for or receives exactly what the investment was worth at the time and there will be no cross-subsidisation. This is not the case in an SPV where one investor may have invested based on the valuation of the underlying investment. The next day, on which another investor withdraws his investment, that underlying investment is sold at either a significantly higher or lower price. This means that the investor who withdrew his investment would receive either significantly more or less than what the investment had been valued at the day before and the balance between what he received and what it was valued for the day before either accrues to or reduces the value of the remaining investors.

Unfortunately pension funds have no choice in this matter, it being a statutory requirement, and pension fund members are dammed to accept whatever the outcome will be for them.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Upon a superficial study of the definitions of ‘pension fund’ and ‘pension preservation fund’ one may be forgiven for reaching the quick conclusion that these definitions are the same – not so. There is a subtle but important difference that we draw readers’ attention to and that fund members may be able to exploit for their best benefit.

The definition of ‘preservation fund’ determines in sub-section (b)(ii)(cc) that  if in the case of a pension preservation fund, “(cc) a person dies after he or she has become entitled to an annuity, no further benefit other than an annuity or annuities shall be payable to such person’s spouse, children, dependants or nominees;”. There is no equivalent provision in the definition of ‘pension fund’.

The relevance of this subtle difference is that when a pensioner passes away who retired in his former or another approved pension fund, benefits to his/her spouse, children, dependants or nominees are not restricted by the Income Tax Act to being an annuity or annuities, as is the case with a pension preservation fund. Depending on the rules of the pension fund, the beneficiaries could be entitled to a cash lump sum and/or the commutation of 1/3rd of any annuity payable to the beneficiary, which is clearly beneficial from the tax point of view. (Refer to the afore going article on ‘Death benefits and the rediscovery of PN 5 of 2003’.)

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

We recently had to deal with two interesting scenarios that no doubt occur regularly.

In the first case, a former pension fund member instructed us to pay his withdrawal benefit into an account that is held jointly by him and his wife who thus has unrestricted access to all funds in this account, including any pension fund moneys paid into the account.

In the second case, the employer of a deceased employee incurred a number of costs related to the funeral of the deceased employee and to transport deceased’s family members from SA to the funeral in Namibia. The employer entered into an agreement with the family members authorizing the fund to pay such portion of the death benefit directly to the employer, as the employer had borne in connection with the funeral.

Considering the stipulations of section 37 of the Pension Funds Act, the question must be asked whether such payments would contravene the Pension Funds Act?

Section 37A deals with a “…benefit, or a right to a benefit being reduced, transferred or otherwise ceded, or of being pledged or hypothecated, or be liable to be attached or subjected to  any form of execution under judgment or order of a court ….”. The section goes on to say that “…in the event of the member or beneficiary concerned attempting to transfer or otherwise cede, or to pledge or hypothecate such benefit or right, the fund concerned may withhold or suspend payment thereof …”.  

The desired payments must be evaluated against the provisions of section 37A. In this context Pensions World journal of June 2006 contained an interesting deliberation on the application of Section 37 A. This talks about two schools of thought, one being that the benefit must reach the member and it cites two cases that dwelled on this question. Whether a payment into a jointly held account or to the deceased’s employer in terms of an instruction by beneficiaries can be construed as having reached the member or the beneficiary is questionable, but certainly poses a risk to the fund that the fund needs to consider.

Section 37A(1) permits a fund to withhold or suspend payment of benefits should any attempt be made to transfer, cede, pledge or hypothecate the member's benefits. If our interpretation of the Act is correct, the fund is permitted to withhold or suspend payment of the benefit, which these instructions by the member and the beneficiaries of the death benefit may entail.

Before simply following the instructions of a former fund member or of the beneficiaries of a death benefit that may be in contravention of the Pension Funds Act and more specifically with regard to Section 37A(1), the trustees should consider obtaining a legal opinion in this regard although a legal opinion is also only an opinion, unless it relies on decided legal precedent that leaves no room for any interpretation.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Pension backed housing loans offered by commercial banks are typically based on an agreement between the bank the fund and the employer. The main responsibilities of the parties are as follows:
The employer is required to

• assist the employee to complete the documentation required by the bank;
• ascertain that the application is consistent with section 19(5) of the Pension Funds Act;
• deduct the monthly loan repayment from the employee’s salary;
• pay over to the bank its employees’ monthly loan repayments;
• inform the bank of the termination of service of the employee.

The bank is required to

• ascertain the affordability of the loan to the employee;
• disburse the loan amount approved;
• account for interest and loan repayments.

The fund is required to

• ascertain that the loan applied for does not exceed the maximum loan as agreed between the parties;
• record the fact that the member has taken a loan on the member’s record;
• obtain the outstanding loan balance from the bank at the member’s date of exit when it is informed of the member’s exit from the fund;
• pay the outstanding loan balance to the bank upon a member’s exit.

Since pension funds typically outsource the administration of their fund, the fund’s obligations in terms of the agreement with the bank and the employer will have to be transferred to the fund’s administrator.

The meticulous reader might already have realised from the above exposition that the fund is obliged to repay the outstanding loan balance to the bank. But what if there is a shortfall between the amount repaid to the bank and the member’s available capital? There are a few reasons for a possible shortfall, such as negative returns on the pension fund investment, arrears tax deducted from the benefit or the benefit having been paid out without having deducted the outstanding housing loan. This risk is borne by the fund!

There can be a number of reasons for the failure to have deducted the outstanding housing loan balance from the member’s benefit. The member record may not have shown this member to have had a loan. Since such entry on a member’s record is not the result of a ‘book entry’ by the fund, it is utterly dependant on manual intervention. A member’s details may have changed, either through marriage or because the member has two different identity documents, not such an unusual occurrence, or the identification number allocated by the bank was incorrectly recorded by the fund.

Another risk often overlooked in ignorance of the legal pre-requisites, is the fact that the Labour Act is pretty prescriptive and restrictive with regard to when an employer may make deductions from an employee’s salary and how much it may deduct, if anything. The fund may thus have happily entered into an agreement with the bank and the employer only to find that the employer is legally prevented from making the required deductions from members’ salary.

In an event where the fund incurred a loss because of a shortfall between the outstanding loan balance it was required to pay over to the bank and the available capital, the fund would have to make an attempt to recover the shortfall from the exited member. The prospect of success then depends on what agreement the fund has with the member and what recourse it offers the fund for such instance. In our experience, funds mostly do not enter into a separate agreement with their members who borrow for housing purposes and are reliant on the documents the bank has compiled in terms of the housing loan scheme. These documents are typically only concerned about the bank’s interests and offer little respite to the fund. Banks have also not been accommodative at all to fund’s requests for better protection of their interests.

Funds that grant pension backed housing loans are advised to ascertain that repayment deductions are permissible in terms of the Labour Act and to consider entering into a separate agreement with borrowers that will afford funds the necessary recourse for the event of a member or former member not repaying the outstanding housing loan balance.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

In our previous article we discussed the following issues:

• Funds should provide adequately for retirement
• Why have a pension fund?
• Government is a key stakeholder in retirement provision
• The employer is a key stakeholder in retirement provision
• The employee is a key stakeholder in retirement provision
• Government wants the private sector to make provision for retirement
• ‘To provide adequately’ – is it in the eyes of the beholder?
• How much do I need to put aside to retire with dignity?

What about death and disablement?

In the previous newsletter we suggested that the main purpose of a retirement fund is to allow you to retire with dignity. We also pointed out that, depending on the net investment returns you will be able to achieve over the course of your membership, you need to set aside between 10% and 14% of your total remuneration in order to achieve an internationally accepted norm of a pension equal to 2% of your total remuneration, per year of retirement fund membership, i.e. 60% after 30 years or 80% after 40 years of membership.

Your, and your dependants’ needs should be provided for adequately

This rate of saving does not yet provide for any needs you and your family may have in the event of your death or disablement. Again it would be most meaningful to determine the needs of you and you dependants in terms of a regular monthly income, by reference to your regular monthly cost of living. Needs obviously vary widely depending on your life stage and the number of people dependant on you. Typically when you are young and have no dependents, you probably have little or no need for death cover. As you grow older, get married and your family expands your need for death cover increases, to eventually start decreasing again as your children leave the nest and your life expectancy decreases, until you reach retirement.

How much does your family need in the event of your death?

If you want to provide for your and your dependants’ needs in the event of your death, including the need to make provision for future inflation, you need to have capital at death of between 8 and 16 times your total annual remuneration, depending on your life stage and status of dependants. This amount would typically comprise partially of the retirement capital you have accumulated to that point and life cover making up the difference. For a retirement fund with a normal age spread, average capital required for death benefits would thus be around 12 times aggregate annual member remuneration of which, typically, between once and twice aggregate annual member remuneration would be derived from members’ accumulated capital. The difference of around 10 times annual member remuneration thus should be provided by insurance. At that level of insurance cover, you can expect the premium to be between 2% and 4% of aggregate annual member remuneration. Typically insurance companies provide in the event of death, either a lump sum or an income benefit to your spouse and/or children, or a combination of both benefits. Clearly an income benefit is preferable as it better matches the monthly cost of living across the different life stages of your dependants.

How much do you and your family need in the event of your disablement?

Now, what is the position in the event of your disablement. Here your needs are probably higher than they would be in the event of death, because you are still alive and you probably require costly care. Typically insurance companies provide in the event of disablement, either a lump sum or an income benefit, or a combination of both benefits, with a limit of replacing 100% of your remuneration. Once again the income benefit is preferable as it better matches the monthly cost of living across the different life stages of you and your dependants. The cost of a benefit that meets your needs, is typically between 1% and 2% of aggregate annual member remuneration.

Conclusion

To conclude this topic, you should now ‘have a good feel’ for what your retirement fund should aim to achieve and what you can expect the total cost of this package to be. Does it make sense to offer a retirement fund arrangement that does not, at least, adequately provide for retirement? Remember, if your competitor offers a better arrangement, you might find it difficult to attract and retain the right caliber of staff. And just one last thing, we have not addressed the costs of managing your fund, another cost factor to keep in mind.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Namfisa recently issued a draft directive on how pension funds are to deal with unclaimed benefits, for comment by stakeholders. We are concerned that this directive will make the management of unclaimed benefits unnecessarily complex and costly, at the expense of members.

We do not agree with the rationale Namfisa appears to have applied to arrive at the conclusions that have led to this circular. Our views are reflected below.

Draft Directive re Unclaimed Benefits

In this draft directive Namfisa apparently bases its views as reflected by the directive on the SA case of Joint Municipal Pension Fund and another versus Grobler and Other that served in Supreme Court of Appeal (case 183/06). This case dealt with a rule amendment that would have deprived the member of an established benefit.

The draft directive insinuates that the judgment delivered in this appeal case prohibits the deduction of costs from any benefit payable to a pension fund beneficiary. It would require pension funds to divert a portion of an employer’s contribution to fund an ‘unclaimed benefits expense reserve’ from which any costs a fund incurs in tracing a beneficiary of an unclaimed benefit are to be borne. In addition any portion of this diversion in respect of such a beneficiary that was not spent on tracing the beneficiary should be added back to the benefit.

Besides making the management of unclaimed benefits, that principally represent exceptional situations, awfully complex and expensive to administer, we believe that the rationale for this directive is based on an incorrect interpretation of the case referred to above.

In our opinion the principle of the Pension Funds Act is that the benefit due to a member is the amount specified in the rules of the fund and not, as Namfisa would simplistically want to insist, that it is the member’s fund credit. In this regard, SA precedent, even if it was relevant, of course does not ipso facto apply to Namibia. We do not believe the above case is relevant as precedent though, as it does not suggest that benefits cannot be calculated as a member’s fund credit less certain costs, but only addresses rule amendments that have the effect of reducing a member’s established entitlement.

What Namfisa should aim to achieve and with which objective we would fully agree is the principle that a benefit must be calculable by reference to the rules of a fund. As long as such costs are calculable they are consistent with the argumentation of the judges in the Grobler case. This is not a reduction of a benefit because the benefit is the, call it, fund credit less the calculable cost of effecting payment. After all it is sound and fair to determine costs for administrative effort, based on resources applied and we believe that any court would ensure that fairness is maintained above all.

We believe that the draft directive is actually in conflict with the Grobler case as it would require a fund to add back on a member specific basis any unspent balance. This benefit would clearly not be calculable and is unfair towards members under different scenarios, which I believe, the Grobler case intends to prevent. If Namfisa’s argument were to be correct, it should be able to apply it to a defined benefit fund in exactly the same way, which it will not be able to do.

Conclusion

We believe the directive should be amended by removing the requirement to credit any benefit with any unspent portion of the expense reserve allocation, by removing the specific reference to funding these expenses from the employer contribution and by rather introducing the principle of prohibiting member specific benefit adjustments for any credits or debits that cannot be quantified in the rules. The directive should also require that the rules must indicate how the fund will deal with unquantified or unquantifiable expenses and income, which may not be on a member specific basis unless Namfisa has specifically approved such process.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Funds should provide adequately for retirement

Most trustees would probably know that the purpose of their fund is to provide adequately for retirement, perhaps for disablement and death as well. But, ‘to provide adequately for retirement, or disablement or death’ – what does this actually mean? Why do you actually need a fund for these purposes? We all know that we can individually make our own insurance and savings arrangements according to our own needs and requirements, without being ‘straight jacketed’ into the employer’s retirement fund.

Why have a pension fund?

Let’s revisit the main reasons for setting up a retirement fund to provide for retirement, disablement and death before we examine what ‘provide for’ means. Honing in on the many reasons, one needs to recognize the main stakeholder of retirement provision which are: firstly, the government, secondly the employer and thirdly, the member.

Government is a key stakeholder in retirement provision

Government clearly has an interest in its subjects providing for retirement, disablement and death to relieve the burden on the fiscus to look after those that can no longer provide for themselves and their families due to superannuation, incapacity or death. To encourage its citizens to make their own provision, government offers special tax incentives via the Income Tax Act, not availed to any other savings vehicle. In addition, government has thrown a special protective net over retirement fund savings via the Pension Funds Act that is not availed to any other savings vehicle.

The employer is a key stakeholder in retirement provision

Let’s now turn to the employer as another key stakeholder. Considering that there is currently no legal obligation on an employer to offer a retirement fund arrangement to its staff, the question begs to be asked, why an employer would have any interest in a retirement fund and why is it then that the majority of employers do actually burden themselves with the responsibilities and obligations linked to the introduction and maintenance of a retirement fund? Why does the employer not simply hand over the cash to the employee and let the employee care for himself? After all, they are all mature adults and the employer not their tutelage. Fact of life unfortunately proves these assumptions wrong! So the employer has to think long-term on behalf of his employees, a social responsibility that will allow the employer to sleep in peace. But this is not the only reason. In today’s competitive labour market, an employer who does not offer pension benefits, will be at a distinct disadvantage when it comes to attracting and retaining scarce skills, so market forces pressure the employer into offering pension benefits.

The employee is a key stakeholder in retirement provision

Where does the employee as third key stakeholder stand with regard to pension arrangements? As we just read, employees of course prefer to have the cash in their back pockets, at least while they are young, healthy and in a sound financial position. When any of these parameters change and as the employee gets older, starts thinking about his kids and their future and about his own old age, the perspective starts changing. Trying to make personal arrangements at this point would be either too late or one would be barred for reason of pre-existing conditions that no one in his right mind would be prepared to underwrite anymore.

Government wants the private sector to make provision for retirement

The long and the short of this is that government wants the employer and the employee to make provision for old age and other situations and offers very attractive incentives to the employees in particular. Employers feel a moral and competitive compulsion and employees are probably split equally on the issue.

‘To provide adequately’ – is it in the eyes of the beholder?

Having considered the reasons for retirement funds the next question to answer is what ‘to provide adequately for retirement, disablement and death actually means. Since all of us incur regular monthly costs to live that are related to our income, while we incur ad hoc outlays only infrequently. The main objective of a retirement fund should then be to replace one’s regular income come retirement. For retirement, an accepted international norm is to achieve an income replacement ratio post retirement of 2% per year of service. This means that you would only be able to replace your income before retirement one on one, if you have been employed for 50 years! Most of us won’t be in that category but would look rather at 30 or 40 years of service at best. Considering that the capital available at retirement is a function of contributions made and investment returns earned.

How much do I need to put aside to retire with dignity?

If we assume that when I retire at 60, the pension of 2% per year of service is to provide for my surviving spouse at a reduced pension after my demise and that this pension is to sort of keep up with inflation, I would need capital at retirement of around 7 times my annual cost of living at the time. To get to 7 times my annual cost of living, I would have to put aside a net 14% of my cost of living (or monthly income) earning a net 3% above inflation. If my money earns a net investment return of 5% net above inflation, I only need to set aside 10% net, or if I earn 7% net above inflation, I only need to set aside 7% net of my cost of living (or monthly income). Higher investment returns imply higher risk, but in the reasonable safety offered in the retirement fund environment, a return of 7% net above inflation can be achieved in the most aggressive pension fund portfolios. A note from the market here – in Namibia the average gross contribution towards retirement is in the region of between 10% and 11%, between employee and employer.

What you need to bear in mind in all of these calculations though is that you need to be a member of the fund when you enter employment until you reach retirement. The contribution towards the fund must be based on your total remuneration throughout, rather than perhaps just the cash component. When you change job you must preserve your accumulated capital for retirement. Given this, you should be able to replace your income before retirement at a ratio of 80% if you join the fund at 20, retire at 60 and maintained the appropriate contribution ratio, and achieved the required investment return throughout. Should you have joined the fund only at age 30, the replacement ratio would decline to 60%.

What about death and disablement?

So now you should have an idea what it means to provide adequately for retirement. What we have not looked at yet is what it means to provide adequately for the event of death or disablement. This we will be looking at in the next newsletter. Suffice it to point out here that this has a cost implication that would have to be added to what we have arrived at when considering retirement. And of course nothing comes for free, so on top of all these elements you will eventually also have to add the cost of managing such an arrangement.

What about death and disablement?

In the previous newsletter we suggested that the main purpose of a retirement fund is to allow you to retire with dignity. We also pointed out that, depending on the net investment returns you will be able to achieve over the course of your membership, you need to set aside between 10% and 14% of your total remuneration in order to achieve an internationally accepted norm of a pension equal to 2% of your total remuneration, per year of retirement fund membership, i.e. 60% after 30 years or 80% after 40 years of membership.

Your, and your dependants’ needs should be provided for adequately

This rate of saving does not yet provide for any needs you and your family may have in the event of your death or disablement. Again it would be most meaningful to determine the needs of you and you dependants in terms of a regular monthly income, by reference to your regular monthly cost of living. Needs obviously vary widely depending on your life stage and the number of people dependant on you. Typically when you are young and have no dependents, you probably have little or no need for death cover. As you grow older, get married and your family expands your need for death cover increases, to eventually start decreasing again as your children leave the nest and your life expectancy decreases, until you reach retirement.

How much does your family need in the event of your death?

If you want to provide for your and your dependants’ needs in the event of your death, including the need to make provision for future inflation, you need to have capital at death of between 8 and 16 times your total annual remuneration, depending on your life stage and status of dependants. This amount would typically comprise partially of the retirement capital you have accumulated to that point and life cover making up the difference. For a retirement fund with a normal age spread, average capital required for death benefits would thus be around 12 times aggregate annual member remuneration of which, typically, between once and twice aggregate annual member remuneration would be derived from members’ accumulated capital. The difference of around 10 times annual member remuneration thus should be provided by insurance. At that level of insurance cover, you can expect the premium to be between 2% and 4% of aggregate annual member remuneration. Typically insurance companies provide in the event of death, either a lump sum or an income benefit to your spouse and/or children, or a combination of both benefits. Clearly an income benefit is preferable as it better matches the monthly cost of living across the different life stages of your dependants.

How much do you and your family need in the event of your disablement?

Now, what is the position in the event of your disablement. Here your needs are probably higher than they would be in the event of death, because you are still alive and you probably require costly care. Typically insurance companies provide in the event of disablement, either a lump sum or an income benefit, or a combination of both benefits, with a limit of replacing 100% of your remuneration. Once again the income benefit is preferable as it better matches the monthly cost of living across the different life stages of you and your dependants. The cost of a benefit that meets your needs, is typically between 1% and 2% of aggregate annual member remuneration.

Conclusion

To conclude this topic, you should now ‘have a good feel’ for what your retirement fund should aim to achieve and what you can expect the total cost of this package to be. Does it make sense to offer a retirement fund arrangement that does not, at least, adequately provide for retirement? Remember, if your competitor offers a better arrangement, you might find it difficult to attract and retain the right caliber of staff. And just one last thing, we have not addressed the costs of managing your fund, another cost factor to keep in mind.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. RFS Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of RFS.

The Child Care and Protection Act, Act 3 of 2015 was promulgated in Gazette 5744 of 29 May 2015, to give effect to the United Nations Convention on the Rights of the Child, the African Charter on the Rights and Welfare of the Child and other international agreements binding on Namibia.

The Act will commence on a future date to be published by the Minister by notice in the Gazette. It provides for a penalty not exceeding N$ 50,000 or imprisonment not exceeding 10 years or both, for offences relating to abuse, neglect, abandonment or maintenance of a child. It also provides for the state paying a maintenance grant, a child disability grant and a foster parent grant, in an amount and frequency as determined by the Minister by regulation.

The Act aims to:

• give effect to the rights of children;
• set out principles relating to the best interests of children;
• set the age of majority at 18 years;
• provide for the appointment of a Children’s Advocate;
• provide for the establishment of a Children’s Fund;
• make provisions relating to children’s courts;
• provide for residential child care facilities, places of care and shelters;
• provide for proof of parentage and parental responsibilities and rights in respect of children born outside marriage and children of divorced parents;
• provide for custody and guardianship of children on the death of the person having custody or guardianship;
• provide for kinship care of children;
• provide for prevention and early intervention services in relation to children;
• provide for foster care;
• provide for the issuing of contribution orders;
• provide for the domestic adoption and inter-country adoption;
• combat the trafficking of children;
• provide for provisions relating to persons unfit to work with children;
• provide for grants payable in respect of certain children; and
• create new offences relating to children.

Once the Act commences the following laws will, amongst others, be repealed in the whole:

• Children’s Act, 1960,
• Children’s Status Act, 2006 and
• Age of Majority Act, 1957

Once the Act commences the following laws will be amended:

• the Combating of Domestic Violence Act, 2003,
• the Combating of Immoral Practices Act, 1980,
• the Liquor Act, 1998,
• the Administration of Estates Act, 1965,
• the Marriage Act, 1961; and
• the Criminal Procedure Act, 1977

As fund administrators one of the more complex issues we have to deal with is the determination of the tax that is to be deducted from a member's benefit, where the member has an outstanding housing loan. This could be an amount owed to the fund where the fund advanced the loan, or a loan guaranteed by the fund where a bank granted the loan. It is the administrators obligation to determine the taxable amount, and to obtain a 'tax directive' from Inland Revenue that indicates the amount of tax to be withheld, where the taxable amount exceeds N$ 40,000.

The matter becomes complex as the result of a practice note issued by Inland Revenue, PN 5/2003, that defines how the taxable amount of a lump sum death benefit from a pension fund is to be determined. It becomes even more tricky should Inland Revenue appoint the administrator as agent to collect arrears tax owed by the taxpayer who is due a benefit. A final complexity is that a lump sum death benefit from a pension fund is taxed in the hands of the beneficiaries rather than the deceased, unlike provident fund death benefits that are explicitly taxable in the hands of the deceased.

The essence of PN 5/2003 is that 34% of a lump sum death benefit from a pension fund is taxable if the pension fund does not pay any dependants' pensions. The capital value of any dependants' pension payable can be offset against the 34% of the lump sum and the net amount if positive will be taxable. If negative the full lump sum will be tax exempt.

The essence of a Notice to Appoint Agent is that it can only be issued in respect of any moneys held by the administrator for payment of a benefit to the taxpayer in respect of whom the notice is issued. How would Inland Revenue know of the administrator holding money of a delinquent taxpayer for payment of a benefit. As pointed out above, the Income Tax Act requires the administrator to obtain a tax directive on any taxable benefit in excess of N$ 40,000. Where a benefit is not taxable, no directive needs to be obtained and Inland Revenue would not be aware of an opportunity to seize on moneys held by the administrator for payment of a benefit to a delinquent taxpayer.

Coming to the matter of benefits and housing loans, a housing loan guarantee, is a liability of the fund in the first instance and the fund is obliged to meet this liability in accordance with its agreement with the holder of the guarantee. Section 37D allows the fund to deduct a loan or a loan guarantee from the benefit due by the member. This means that the administrator would be required to redeem any outstanding housing loan or housing loan guarantee from the gross benefit due in accordance with the agreement between the bank and the fund, usually immediately upon termination of membership.

Once the administrator has redeemed a housing loan guarantee or has deducted the outstanding loan by the fund to the member, from the benefit, Inland Revenue can collect arrears tax via the administrator, maximum arrears equal to the net benefit due to the taxpayer concerned, after PAYE, and after the outstanding loan has been deducted from the benefit.

Inland Revenue's claim for arrears has precedence over the fund's claim against the member's benefit for an outstanding housing loan. The administrator though, as deemed employer, holds for the taxpayer only the net amount due in terms of the rules, which is gross benefit after deducting the outstanding loan balance and PAYE and that is all the administrator can be obliged to pay to Inland Revenue.

Inland Revenue would now have to take on the fund for any shortfall as the result of the fund's claim against the taxpayer having been redeemed prior to Inland Revenue's preferent claim. Effectively, the fund would have to stand in for the smaller of Inland Revenue's claim and the amount it recovered from the taxpayer in respect of the outstanding housing loan. The administrator is not a party to such a process. This is between the fund and Inland Revenue. If PAYE on the gross benefit exceeds the net benefit due to the taxpayer after deducting the outstanding housing loan, the fund would have to stand in for the difference and would have to try recover this from the member.

Here are 3 scenarios of a death benefit from a pension fund where the deceased has an outstanding housing loan and how these are to be dealt with by the administrator for tax purposed:

Scenario 1:

• Total net death capital - N$ 1,400,000
• Housing loan balance - N$ 100,000
• Total gross benefit/death capital - N$ 1,500,000 (100%)
• Capital applied to purchase pensions - N$ 600,000
• Capital paid as lump sum - N$ 900,000 (60%)
• Taxable portion of death benefit (N$ 1,500,000) - N$ nil (less than 66% paid as a lump sum)
• Housing loan (N$ 100,000) redeemed from benefit, no tax consequence
• No directive required as there is no taxable benefit.
• No arrears tax of deceased can be claimed by Inland Revenue as no money is due to the deceased, but arrears tax of beneficiary can be claimed.

Scenario 2:

• Total net death capital - N$ 1,400,000
• Housing loan balance - N$ 100,000
• Total gross benefit/death capital - N$ 1,500,000 (100%)
• Capital applied to purchase dependants pensions - N$ nil
• Capital paid as lump sum - N$ 1,500,000 (100%)
• Taxable portion of death benefit (N$ 1,500,000) - N$ 510,000 (more than 66% paid as a lump sum, maximum of 34% deemed to be a cash withdrawal benefit)
• Housing loan (N$ 100,000) redeemed from benefit, no tax consequence
• Net death lump sum (N$ 1,400,000) -N$ 510,000 taxable in the hands of beneficiaries, i.e. 36.4% of each beneficiary's benefit is taxable in the hands of each beneficiary.
• Tax directive to be obtained for each beneficiary who is due a benefit in excess of N$ 40,000.
• No arrears tax of deceased can be claimed by Inland Revenue as no money is due to the deceased, but arrears tax of beneficiary can be claimed.

Scenario 3:

• Total net death capital - N$ 1,460,000
• Housing loan balance - N$ 40,000
• Total gross death capital - N$ 1,500,000 (100%)
• Capital applied to purchase dependants pensions - N$ nil
• Capital paid as lump sum - N$ 1,500,000 (100%)
• Taxable portion of death benefit (N$ 1,500,000) - N$ 510,000 (more than 66% paid as a lump sum, minimum of 34% deemed to be a cash withdrawal benefit)
• Housing loan (N$ 40,000) redeemed from benefit, no tax consequence.
• and no directive required
• Gross death lump sum (N$ 1,500,000) - N$ 510,000 taxable in hands of beneficiaries, i.e. 34.9% of each beneficiary's net benefit (in total N$ 1,460,000) is taxable in the hands of each beneficiary.
• Tax directive to be obtained for each beneficiary who is due a benefit in excess of N$ 40,000.
• No arrears tax of deceased can be claimed by Inland Revenue as no money is due to the deceased, but arrears tax of beneficiary can be claimed.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

It is quite interesting how some product and service providers in the retirement funds industry promoted life staging a few years ago, as the answer to investment structuring in retirement funds, professing to be thought leaders. We have never been excited about life staging, and have done a desk study to show why we are not proponents of life staging.

We always believed that good old fashioned investment smoothing by means of the fund maintaining an investment reserve is in the interests of members and offers a superior mechanism that allows the fund to maximise investment returns at low cost. Unfortunately there are very few funds left who still apply this 'good old fashioned' mechanism, not only as the result of product providers promoting life staging, but also often as the result of individuals having seen an opportunity to benefit from the once-off investment reserve distribution.

Is this thought leadership or are these product providers only after their own interests of rehashing products in order to generate new income streams?

Another article 'Life staging solutions try to find the middle path' looks at some of the shortcomings of this sort of structuring. Read it here...

For the benefit of trustees who may still contemplate the life stage model for their fund, the article 'Stress tesing the life stage model' was published on our site in 2011. Read it here...

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Retirement Fund Solutions has announced that it has established a staff trust, the RFS Staff Trust, which effectively holds 17,5% ownership of the company.

Speaking about the Trust, RFS Managing Director Tilman Friedrich said the company has a policy of empowerment from within. "We believe in recognising, rewarding and empowering the individuals who make our company a success, and that is actually everyone in the team" he said.

'With the RFS Staff Trust, we recognise each and every staff member who has assumed the responsibility for making the company the success it is," Friedrich continued.

He pointed out that RFS has built its business primarily on the qualities of its staff. He noted that the company enjoys a low staff turnover and that all staff members are highly experienced. Friedrich said  that, in addition to numerous formal qualifications, the company has a policy of ongoing internal training to keep staff abreast of changes in the dynamic Namibian pension fund environment.

"We have a policy of recognising skills and personal development with professional responsibility. The Trust is an appropriate manner to recognise that our team takes ownership," Friedrich continued.

Asked about the impact of the Trust on formerly disadvantaged Namibians, Friedrich said formerly disadvantaged beneficiaries amounted to 15% of the 17,5% of shares allocated. He said this share was expected to grow to 17,5% and 20% respectively during the course of the year.

The allocation, Friedrich said, brought the total number of formerly disadvantaged beneficiaries of ownership in RFS to 36,25% at the Trust's inception.

In terms of paragraph 2 of Schedule IV (Exempt Supplies) to the VAT act (Act No 10 of 2000), the following services are exempt:

"'financial services' means - ....
(g) provision, or transfer of ownership, of an interest in a scheme whereby provision is made for the payment or granting of benefits by a benefit fund, provident fund, pension fund, retirement annuity fund or preservation fund; or....
(i) the arranging of any services referred to in paragraphs (f) to (h), inclusive, or the management of any fund or entity referred to in paragraphs (g) and (h);..."

Although this is open to interpretation, particularly as regards consulting services (i.e. asset or benefit consulting services), our view is that the services to be provided by your consultant to your fund may well be covered by this definition and would then be VAT exempt. We are aware of a Practice Note issued by Inland Revenue with regard to medical aid funds, specifically excluding IT services provided under a separate agreement, but believe that this Practice Note (No 7 of 2000) is not necessarily to be seen as guidance in this context.

Funds that are not registered for VAT cannot claim input VAT. Paying VAT on services that may fall under the definition of sub-paragraph (i) of the definition of 'financial services' would unnecessarily add to the cost burden of members and should avoided.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Please take note that regulations 1 to 7 under Part I of the Pension Funds Act were repealed per Government Notice no 38 effectiven 19 February 2015. These regulations fall under the heading “Manner in which and time within which appeals to the Minister are to be prosecuted under section three”.

These regulations were unexecutable as section 3 of the Act no longer refers to appeals to the Minister.

Namfisa recently circulated further draft industry regulations under the FIM Act for comment.

• RF.S 5.8 Early withdrawal from a retirement fund
  For members of funds this standard should be of particular interest as it proposes compulsory preservation of 75% of the member’s retirement capital, something the SA regulator has been trying to enforce for many years, without success so far. This standard also sets awfully complex conditions for funds to be allowed to ‘house’ preservation capital and, in respect of funds that prefer not to house preserved retirement capital, for their rules to direct that preserved retirement capital is to be moved to another qualifying fund.
• RF.S 5.10 Exemption from actuarial valuation
  A link to the following specific and general standards and regulations relevant to the retirement funds industry was provided in the Benchtest Newsletter of 12.2014. It may be of interest that regulations are issue by the Minister of Finance while standards are issued by Namfisa.

Draft Regulations RF.R

• RF.R 5.1 Funds and classes of funds in the definition of ‘funds’
• RF.R 5.4 Funds that may be exempted from requirement to have active members and pensioners elect trustees

Draft Standards RF.S

• RF.S 5.1 Calculation of ‘actuarial surplus’
• RF.S 5.3 Payment of contributions - minimum information
• RF.S 5.4 Rules requirements
  Detailed exposition of what fund rules should contain. Funds may wish to ascertain that future rule amendments or revisions comply with the anticipated new requirements. Funds will have 6 months after the promulgation of the Act and the issuing of the standard to comply.
• RF.S 5.6 Termination & dissolution requirements
  Detailed exposition of requirements and onerous conditions before a fund, or its participation in an umbrella fund, can be terminated.
• RF.S 5.9 Beneficiary nomination form
  Prescribed forms funds will have to use and description of processes funds will have to employ to obtain beneficiary nomination forms from its members annually.

Draft General Standards GEN.S

• GEN.S 9.2 Fit & proper
  Detailed exposition of ‘fit and proper’ requirements based on education and experience; competence and capability; honesty integrity fairness and ethical behaviour; and financial soundness with regard to all persons and institutions required to register under the FIM Act
• GEN.S 9.8 Independence
  Detailed exposition of requirements regarding the independence of individuals who are required to be independent in terms of the FIM act.
• GEN.S 9.9 Code of conduct
  Every financial institution and financial intermediary must have a code of conduct in place.
• GEN.S 9.10 Outsourcing
  Detailed exposition of requirements relating to a financial institution or financial intermediary outsourcing of a ‘material business activity’ and prohibits the outsourcing of any ‘primary function’ for which the entity has been registered by Namfisa. It is to be noted that privately administered or ‘stand-alone’ pension funds mostly outsource all their key business activities, such as fund administration and asset management to which this statement will presumably apply.
• GEN.S 9.11 Investment policy statement
  Detailed exposition of the content of an investment policy that every retirement fund must have in place and the matters that must be considered in its investment process.
• GEN.S 9.12 Investment mandate
  Detailed exposition of the content of an investment mandate that every retirement fund must have in place with its investment manager.
• GEN.S 9.13 Payment of contributions

General observations:

• These standards appear to have been copied from text books teaching the ideal world.
• They impose extensive requirements and excessively onerous obligations and responsibilities on funds, their officials and service providers.
• They inhibit the free market mechanism.
• No distinction is made on the basis of size of fund or the risk a fund poses to the financial system of Namibia.
• It will raise the costs to funds significantly and will result in many small and medium sized funds no longer being viable.
• The regulator will also be challenged to supervise the financial services industry and will have to expand its resources substantially unless the industry shrinks substantially, which it will.
• These standards defeat the stated objective to move from rule based to risk based supervision and will require stakeholders to be totally rule focused.
• Although never stated publicly, unlike the FSB in SA has, it appears that Namfisa too is on a drive to consolidate the industry, but since the Namibian industry (100 funds) and the average fund size is very small (10 funds with more than 1,000 members), in our case there will not be much left of this industry once all these requirements become law.

We have prepared a more detailed analysis that will be made available at request.

Much can go wrong at the expense of your fund when moving assets between managers, of which you may never be aware. If you do contemplate shifting assets, consider engaging specialist ‘transition management’. What is ‘transition management’ you may ask? Well it is a specialist service offered to funds that want to transfers asset from a manager/s to an/other manager/s.

Whenever your fund contemplates a significant restructuring of its investments, our best advice is to consider employing a transition manager. The minimum transaction such specialists would typically consider is a transfer of N$ 50 million plus. Their fees for such a service typically comes out of them earning brokerage on any buy and sell deals that will need to be made in the process. Effectively it would not cost the your fund anything extra. The process provides full transparency to you and the means to measure the efficiency of its execution.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

An article that appeared in ‘Pensions World’ magazine of September 2010, deals with payment of a lump sum death benefit by a fund to a testamentary trust. Where member directs payment of death lump sum to his/her testamentary trust, the trust deed must provide for the following:

• It must make provision to receive money from a retirement fund.
• It must provide for fund benefits to be dealt with by the trustees of the trust, in the manner directed by the fund.
• Capital must be ring-fenced, capital and income must vest in the designated beneficiary and may not be redistributed.

Disposition of capital of deceased beneficiary in beneficiary trust

When disposing of the death benefit of a deceased fund member, trustees commonly direct that the capital allocated to minor beneficiaries be paid into a trust for the benefit of the minor beneficiary until the beneficiary reaches majority. Section 37C of the Pension Funds Act defines the trustees’ obligation with regard to the disposition of a death benefit. It is clear from this section that the trustees are obliged to apply their discretion in allocating capital to a beneficiary[ies] who has[ve] to be [a] natural person[s].

However under certain circumstances, a benefit can be paid to a trust. As explained in the preceding article ‘Can you request that your death benefit be paid into your testamentary trust?’ the trust deed must comply with 3 key conditions as set out. One of these conditions is that the capital must be ring-fenced and that capital and income must vest in the beneficiary and may not be redistributed. It follows that in the event of the death of the minor beneficiary prior to the ‘expiry date’ of his/her trust, any remaining capital, including interest must be paid to the deceased beneficiary’s estate.

If a retirement fund’s dependants trust deed does not make it categorically clear that a beneficiary’s benefit from the fund vests in the beneficiary for his or her sole and exclusive benefit, the trustees of the fund are well advised to ascertain that the trust deed is amended accordingly.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

In this financial year we budget to spend close to 1.3% of total revenue on what is generally referred to as ‘social responsibility’. This is in line with what we have been doing since the company was established and exceeds the 0.5% set in our policy. In fact, RFS has embraced its responsibility in this regard even before it’s was able to pay any remuneration to its founding directors!

As is quite typical for RFS we usually do not do what everybody else does. We are different – we do not spend shareholders money just to meet our obligations. We apply our personal conviction, capacity and time to benefit in a meaningful way the community we serve.

First and foremost, it is our conviction that the foundation for economic progress of the country is an educated youth. We therefore place great emphasis on education and the youth of our country.

Once again in our drive to be unique, our single most costly project is the monthly Benchtest newsletter aimed at educating trustees and business people, that is well appreciated by a wide readership and often praised by our readers. We do make reference to these compliments in the newsletter on a regular basis – refer to the comment below.  The cost of producing the technical content of the monthly Benchtest newsletter amounts to roughly 0.4% of total revenue, in relative terms close to or even higher than what many other companies’ total spend in this regard is!

• A number of other commitments of our staff that are supported by the company and reflect our unique approach, are:
• Active engagement in industry bodies of a number of senior staff.
• Active engagement in and support of Projekt Lilie (a project supporting education).
• Sponsorship of SKW/RFS Annual Youth Soccer tournament.
• Sponsorship of Namcol and Polytechnic bursaries for outstanding performance of students.
• Active engagement in and support of the Okanti Foundation (medical support of children with rare diseases).
• Active engagement in and support of school hockey.
• Support of DSSW/ RFS Annual Secondary Schools Soccer tournament.
• Support of numerous sport events where staff is actively engaged.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Insurance companies are offering members of pension funds to move their retirement capital from their retirement fund into an ‘untied’ annuity – i.e. an annuity offered by an insurance company to the applicant who will be the owner of the insurance policy issued in respect of this annuity. Insurance companies are relying on a circular and an unofficial ‘memorandum’ once issued by Namfisa on this topic, both of which in our opinion are ambiguous.

They have also approached Inland Revenue who issued a ruling to them in this context. All three communications that were issued make it clear that the capital must retain the protection it would enjoy under the Pension Funds Act. We believe this mechanism does not afford such protection. The consequence of our opinion  is that the member who used this mechanism may be taxed at any time in future should Inland Revenue conclude that the capital that was moved to an ‘untied’ annuity should have been taxed, with interest being raised on top of it.

For the fund such outcome could at best present a significant reputational risk, potentially even a pecuniary risk. A further risk for the member is the potential demise of the insurance company that could mean the loss of the member’s entire retirement capital. Again, for the fund such outcome could at best present a significant reputational risk but potentially even a pecuniary risk.

Unfortunately we earn much scorn as the ‘odd one out’ and are at times even discredited by brokers who ‘smell’ the hidden agenda of the Benchmark Retirement Fund offering a pension arrangement to members upon retirement from another fund which is fully compliant with both the Income Tax Act and the Pension Funds Act. This mechanism is referred to a ‘tied’ annuity – i.e. an annuity offered by an approved retirement fund to its members.

We consider it our obligation to assess the potential implications of the payment of a benefit for the beneficiary and the fund from a legal point of view. Where we are of the opinion that such payment presents a risk to either the fund or the member, or both, we would not affect payment without having pointed out the possible consequences to the member and/ or the fund. As fund administrator, we cannot be expected to assume responsibility for such risk and will not allow the member to be exposed to this risk. Where the fund is prepared to assume liability for the risk we will  proceed as directed by the fund.

The law unfortunately is not always clear and has to be interpreted if no reliance can be placed on a legal precedent, as is mostly the case. Interpreting laws is a matter of opinion, sometimes well qualified, but at times also unqualified. Even if such interpretation is given by the best legal expert it will only be proven right or wrong once a court has pronounced itself on such a matter. A fund struggling with this matter is well advised to distinguish between qualified and unqualified advice when confronted with different opinions.

While the uncertainty prevails on the matter of ‘tied’ versus ‘untied’ annuities, the procedure we have instituted transfers the tax risk to Inland Revenue by requesting a tax directive with a form which clearly spells out that the retirement fund member intends to move the retirement capital to such an ‘untied’ annuity. After all correspondence with Inland Revenue, Inland Revenue will find it very difficult to ever argue that RFS has not clearly communicated its opinion and the substance of such transactions.

As far the risk of the demise of the underwriting insurance company is concerned, RFS similarly has repeatedly pointed out its opinion to Namfisa and has expressed its concern to Namfisa on the two communications Namfisa issued in this context, that are being interpreted by insurance companies to justify such transactions. RFS clients have of course also been made aware via circulars and the Benchtest newsletters of the risks presented by the mechanism of providing ‘untied’ annuities with retirement capital from a retirement fund.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Housing is a national priority. Unfortunately national policies and national laws often are not supportive of each other. In the past pension funds were a popular avenue for member’s obtaining funding for the purchase or expansion or alteration of their dwelling. Recently the Pension Funds Act was amended as referred to in Benchtest 09.2014. This amendment read together with the Income Tax Act, presents a significant risk to funds that do still offer loans or loan guarantees to its members, of not being able to recover the full outstanding amount from a member’s benefit.

Unfortunately, banks who still finance loans secured by a pension fund guarantee, and who were approached to assist their pension fund clients in mitigating the risk created by our laws and referred to in the first paragraph, simply refused to affect any changes to their contracts and documentation for this purpose.

As the result funds are reconsidering their involvement in affording members access to financing for housing loans and many will no doubt phase out housing loans as a benefit for members. We foresee that pension funds will no longer offer housing loan benefits in the medium term and funds are in fact well advised not to grant housing loans any longer.

One may ask, why does the Pension Funds Act create an avenue for members accessing their benefits for housing purposes while this would result in funds shouldering a significant risk of being unable to recover an outstanding housing loan balance?

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

The evolution of remuneration packages in the more recent past has undermined and diluted the implicit goals of retirement fund benefit and contribution structures in the last few decades. This is a much discussed shortcoming of remuneration structures nowadays. It is important that employers understand the implication of this for their retirement fund members and that they consider their position carefully. Staff generally do not understand or appreciate the implicit goals of their retirement fund while they are young, healthy and mobile, job-wise, and often only realise their folly when it is too late! This is where the employer has to take a more paternalistic, long term view to ascertain that the short-term view of staff does not prevail, to their own detriment. We all know of course that employees have a tendency to point a finger at others when they realise their own follies.

We suggest the principle should be that the guaranteed package is used as the basis for determining your member’s provident fund contribution, rather than basic salary or wage. The typical retirement fund structure, as it evolved over the past 100 years, which may be referred to as the ‘norm in the market’, aims to provide members with a reasonable income replacement in the event of death, disablement and eventual retirement. The ‘norm in the market’ for retirement, broadly speaking, is about 2% of final income, times years of service and requires a total contribution accumulation of around 15% of income, while employed. To this contribution accumulation towards retirement has to be added the cost of death and disability as well as fund management. We suggest the ‘norm in the market’ for a total contribution rate is between 10% and 11% by employer and around 7% by employee.

Strictly speaking, the ‘norm in the market’ should be set at 100% of remuneration package. In the case of an employer whose total fund contribution rate exceeds the above ‘norm in the market’, this norm of 100% can be tempered due to the above average contribution rate towards the fund, that in itself should secure benefits above the ‘norm in the market’, presumably at the expense of employees’ take home pay. If your total fund contribution rate for example totals 20%, which is above the ‘norm in the market’ alluded to above of around 17%, we would suggest that the desired minimum contribution rate should be set at 85% of remuneration package, to still achieve the implicit goals of retirement funds.

This is an important topic that trustees should discuss with their employers and their fund consultant.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

The purpose of a due diligence assessment is to consider the key risks presented by a product or a service provider. These risks can be classified into the following broad categories:

• Poor performance
• Risk or performance volatility not in line with expectations
• Operational failure of service/product provider
• Financial failure of service/product provider
• Regulatory non-compliance of service/product provider
• Fraud by service/product provider

Areas that need to be addressed through a due diligence assessment of the SPV and of the UIM should cover the following areas:

• Regulatory compliance
• Governance structures
• Financial soundness
• Operational reliability
• Investment management

Regulatory compliance

Regulation 28 directs that funds shall invest a minimum of 1.75%, and a maximum of 3.5%, of the market value of its investments in unlisted investments in accordance with regulation 29. Regulation 29 is a globally unique framework for unlisted investments by pension funds. It defines the new concepts of 'special purpose vehicle' (SPV) and 'unlisted investment manager' (UIM) and directs that an SPV must be managed by an UIM. For these entities, the regulation prescribes the requirements for registration, management, ownership, powers, restrictions and duties, reporting and manner of operation.
Regulatory compliance requires that:

• Both, the SPV and the UIM are registered by Namfisa before any capital is committed;
• Both, the SPV and the UIM remain registered while holding capital of the fund;
• The fund has entered into a subscription agreement with the SPV setting out the committed capital and the draw-down period afforded to the SPV, subject to this being limited to 24 months;
• The fund maintains an investment of no less than 1.75% and no more than 3.5% of the market value of its investments in the SPV/s throughout;
• Where the investment initially comprises only of a commitment of capital, the capital is actually drawn down within 24 months or is committed to another SPV prior to the expiry of this period.
• If any of the afore going conditions cannot be met through circumstances considered out of the control of the trustees at any point in time, an application for extension or exemption is made to and granted by Namfisa.

Governance

Regulation 29 prescribes the governance structures of an SPV and a UIM.  Once, and for as long as, an SPV and the UIM are registered, the trustees can accept that Namfisa has ascertained that sound governance structures are in place for these entities. Sound governance measures, however further require that:

• Regular investment reporting is received from the UIM on the investments of the SPV;
• The investment reports received do not evidently indicate a divergence of the SPV from the initial intentions and investment framework, on the basis of which the trustees selected the SPV;
• Adequate professional indemnity and fidelity cover is maintained by the SPV and UIM;
• Acceptable provision for liquidity is offered by the SPV;
• Proposed fee structures are reasonable;
• Any costs directly borne by the SPV are acceptable;
• Subscription agreement is acceptable and sound;
• Management agreement between UIM and SPV is acceptable and sound;
• SPV management is appropriately qualified and experienced to maintain due care, skill and diligence;

Financial Soundness

Regulation 29 establishes the SPV as a separate legal entity, namely either as a public company, a private company or a trust. The UIM also must be constituted as a public company or as a private company. SPV's will in many cases be established with a fixed investment term due to the nature of the underlying investments, where investment returns will largely only be realised once the SPV exits the investment. The investment process entails funds to first commit capital, Only then will the UIM start to invest. Once the capital has been committed, the investing fund has no further influence on the investment decisions of the UIM.

The risk of the investing fund lies in the capabilities of the UIM to choose projects and investment objects that will produce fair risk adjusted returns and in the SPV not managing the relationship with due care and skill to ascertain that the investing funds' capital is managed diligently by the UIM.

The investing fund's concern about financial soundness should primarily be focused on selecting the right SPV/s and the UIM/s in terms of the UIM/s investment capabilities and the SPV's capabilities to monitor the UIM.
When choosing an SPV and its UIM, sound governance in this regard requires that:

• The financial position of the UIM is satisfactory;
• Assets under management of the UIM provide acceptable comfort of its sustainability;
• Client base of UIM is diversified and provides acceptable comfort of its sustainability;

Operational Reliability

As elaborated in the discussion on 'financial soundness' above, once a fund has committed capital to an SPV, its fortunes are in the hands of the SPV and its UIM. The investing fund's concern should in this regard thus also be about selecting the right SPV/s and the UIM/s in terms of the UIM/s investment capabilities and the SPV's capabilities to monitor the UIM.
When choosing an SPV and its UIM, sound governance in this regard requires that:

• Transparent and comprehensible reporting is provided regularly;
• The UIM has appropriate skills to manage the business of the SPV in terms of accounting, valuation of investments, formulation and administration of agreements;
• The UIM has appropriate systems to manage the SPV;
• Operational policies of the UIM are sustainable and support the retention of key staff.

Investment Management

As elaborated in the discussion on 'financial soundness' above, once a fund has committed capital to an SPV, its fortunes are in the hands of the SPV and its UIM. The investing fund's concern should in this regard thus also be about selecting the right SPV/s and the UIM/s in terms of the UIM/s investment capabilities and the SPV's capabilities to monitor the UIM.
When choosing an SPV and its UIM, sound governance in this regard requires that:

• Proposed investment projects and investment objects of UIM are acceptable;
• Investment track record of UIM is acceptable;
• Investment plan of SPV is acceptable;
• Investment staff of UIM is appropriately qualified and experienced.

Having provided an extensive process and checklist, good governance dictates that the attention trustees apply to unlisted investments should be commensurate with the attention they apply to the 'conventional' investments of their fund.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

Section 19 (5) - housing loans

Amendment Act no 6 of 2014 amending section 19(5) has been published in Government Gazette 5584 effective 8 October 2014. Section 19(5) defines the parameters for a fund granting a loan to a fund member. The Act introduces the following changes, all other conditions remaining unchanged:

• Loans may also now be granted for the purchase of land, the erection of a property on land, or for alterations, maintenance or repair of a property on land, in respect of which a valid customary land right or right of leasehold has been granted in terms of the Communal Land Reform Act, subject otherwise to the same conditions as apply to land held under 'conventional' property rights.
• Loans shall be repayable over the shortest period of either 30 years, the remainder of the member's employable years until retirement, or the duration of the right of leasehold/ customary land right as referred to in the preceding bullet.
• Loans are capped at 90% of the amount of the benefit which the member would receive if he were to terminate his membership voluntarily at the time of taking up the loan.
• Reference to the Black (Urban Areas) Consolidation Act, as a qualifying ownership right, is removed.

It is to be noted that the Pension Funds Act only creates the enabling legal framework. A fund whose rules do not provide for granting loans may not grant loans despite the enabling provisions of the Act.

It is to be noted further that the rules of a fund may cap the maximum loan that may be granted to an amount lower than 90% of the termination benefit (i.e. not the retirement benefit or a commutation thereof).

It is to be noted that in the case of a loan granted to a member, secured only by the member having pledged his benefit, market value is no longer relevant.

Section 37D - deduction from benefits for housing loans for housing loan guarantee

Amendment Act no 6 of 2014 also amend section 37D of the Pension Funds Act. Section 37D defines the parameters for a fund deducting certain amounts from the benefit of a fund member. The Act introduces a change to sub section (a)(ii), (all other conditions remaining unchanged), which now reads as follows:

"A registered fund may -

(a)    Deduct any amount due to the fund in respect of - ...

 ii. any amount to which a fund is liable under a guarantee furnished in respect of a loan by some other person to a member for any purpose referred to in section 19 (5) (a), but the fund shall not be liable to such other person in an amount greater than the amount of the benefit which the member would receive if he were to terminate his membership of the fund voluntarily as at the time the guarantee is called up0n and notwithstanding that the amount originally granted might be greater."

Interestingly a part of the wording in the previous section referring to such permissible deducting being "...from the benefit to which the member or beneficiary is entitled in terms of the rules of the fund..." was removed. This may yet create arguments between a fund and a member on the basis that this section does not permit the deduction from the member's benefit, although it appears that the intention of this section remains just that.

It is to be noted in particular that in our opinion, for the purposes of a third party (employer of bank) claiming from a fund in respect of a member's housing loan, the benefit due to a member is not the gross benefit as per rules but is the net benefit after PAYE (in the opinion of Inland Revenue also after arrears taxes). A fund cannot be held liable by a third party (employer or bank), to pay over more than the member's net benefit. We believe that banks and any employer that has been granting housing loans to fund members on the basis of a fund guarantee are likely to terminate their housing schemes and will seek to call up any outstanding loans, without delay.

Section 37D - deduction from benefits for housing loans for loan granted by fund to member

Where a fund grants a loan directly to a member, it can deduct up to 100% of the member's benefit, in the event of the member having been granted 90% of his benefit and the Receiver of Revenue claiming 10% PAYE. However, should the Receiver claim PAYE at the maximum rate of 37%, any outstanding loan balance in excess of 63% of the members total benefit will have to be recovered from the member. To avoid the situation where the fund has to recover any outstanding loan balance from the member personally, loans should be limited to 63% of a member's total benefit. Note that Inland Revenue will only be able to claim any arrears tax to the extent that any amount is still due to the member after the loan has been redeemed and any PAYE deducted.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

On the 15th anniversary of RFS, the company conducted a brief survey on client satisfaction. Here are the results.

Retirement Fund Solutions (RFS), has turned 15 years old.

Widely regarded as a trailblazer in the Namibian financial services sector, the company was the first administrator to adopt an entirely Namibian mandate.

Friedrich said the company was established on 1 September 1999 by himself and co-founder Mark Gustafsson, who left the company just over a year ago to pursue his own interests. He said the company's first employee, Charlotte Drayer, joined on 1 October of the same year, when the company was appointed to manage and consult on two funds.

Friedrich said the company celebrated its fifth anniversary with 8,000 members and N$ 1,3 billion under administration. At that stage, the company had a staff complement of 15. In 2009, when it celebrated its 10th anniversary, the company had a staff of 41 to administer N$ 6 billion on behalf of 21,000 members. On its 15th anniversary, Friedrich said the company has a staff complement of 59, and administers assets of N$ 14.5 billion on behalf of 35,000 fund members.

Company Founder and Managing Director Tilman Friedrich spoke about the establishment, history and successes of Retirement Fund Solutions.

On the topic of the Benchmark Retirement Fund, which was established by RFS to administer pension investments on behalf of individuals and smaller entities, Friedrich said the fund has grown apace, and administers investments of N$ 1.5 billion for 8,000 members.

Friedrich attributed the growth of the company to its emphasis on governance and compliance to give trustees peace of mind. He said that Namibian pension funds want the assurance that due care and skill is applied to the management of their business, and that strict compliance with Namibian laws and regulations is observed, while the administration of their fund’s business is conducted in a manner which is responsive to the needs of the fund and its members.

In this regard, he said RFS has made a significant investment in technology with the acquisition of a disaster recovery site that will further strengthen its governance and offer peace of mind to its clients to a level typically only offered by large companies. He said the fact that the company’s IT infrastructure is not tied into a foreign parent network, or dependent on foreign expertise or support gives RFS the ability to be responsive to local requirements in terms of governance and compliance.

However he also noted that fund management and administration are driven by 'people helping people', and that RFS places a major emphasis on development of its human capital. He stated that the company supports individual development through formal and informal education, and that its in-house expertise provides a key competitive edge with ongoing on-the-job training so that staff can respond to the changing regulatory environment.

The RFS executive management team FLTR: Louis Theron, Günter Pfeifer, Sharika Skoppelitus, Hannes van Tonder, Tilman Friedrich, Frieda Venter, Kai Friedrich and Marthinuz Fabianus.

Friedrich said the company' strengths are based on several additional factors.

He said that the administrator has rigid quality standards that are benchmarked against international best practices. This, he said, is supported by ongoing training and development of staff.

Friedrich went on to say that quality of service is attained particularly through personal involvement of the owners of the company in day-to-day client service. This ensures that potential problem areas are identified before they occur, contributing significantly to client satisfaction.

He also said that the company's empowerment policy is to develop individuals for upper tier management from within the company, and pointed out that six members of staff now hold shares and directorship, while an additional 17.5% of shareholding in RFS is assigned to other staff, as the result of which every permanent staff member now benefits from the wealth the company creates.


Keynote speaker Lynn Baker gave a lively speech on the topic of Executive Presence at the event.

On the topic of value, Friedrich said that the company has a policy of actively communicating regulatory change to clients, and assisting with development of knowledge to enable clients to make complex decisions regarding pension funds and investments through its monthly Benchtest newsletter.

Talking about the future of pension funds administration in Namibia, Friedrich returned to the topic of the regulatory environment. He noted that Namfisa, the regulator of pension funds in Namibia, is implementing new regulations at a rapid rate. These changes, he said, have require pension fund practitioners to consider not only compliance to the letter of the law, but also the needs of funds and their members. Responsive regulation, he said, will grow the financial sector by requiring administrators to expand their range of services.

Friedrich concluded by saying that the company would continue to grow as the financial services sector grows, but would continue with its sustainable approach of measured growth, to ensure that clients receive the level of excellence to which they are accustomed.

15 years in retrospect - Nampower Convention Centre 26 September 2014

A speech given by Tilman Friedrich

Thank you Daisry, Master of Ceremonies. Thank you for having opened this occasion and for having observed all protocol and all formalities so that I can get straight into the purpose of my taking the stage.

Good evening ladies and gentlemen, trustees, principal officers, business associates, friends and last but certainly not least, colleagues of Retirement Fund Solutions.

Retirement Fund Solutions was registered by the Registrar of Companies on 19 August 1999. The company commenced with two employees who were the sole shareholders and directors of the company. Today 6 staff members are also directors of the company supported by one non-executive director, Mr Festus Hangula. Today all staff have a beneficial interest in the company through a Staff Share Trust and RFS Holdings CC.

Effective 1 September 1999 the company was awarded its first appointment as broker to the Westair Aviation Pension Fund and as consultant to the Taeuber & Corssen Namibia Retirement Fund effective 1 October 1999. On the 1st of October Charlotte Drayer joined the company as its first non-shareholding staff member and we moved into our office in Namlex building. On 1 October 2000 the Cymot Pension Fund and the Taeuber & Corssen Namibia Retirement Fund appointed the company as its administrator.

On 1 January 2000, the Benchmark Retirement Fund was launched. Along the way we passed many other key milestones, many of which have since recurred numerous times and all of which we have reason to celebrate today as part of our 15 year anniversary.

I would at this juncture like to express my sincere gratitude to all our clients who have afforded us their trust and confidence and have supported us over the past 15 years – thank you so much without you I would not stand here tonight.

At the occasion of our 5th anniversary in 2004 at Hotel Thule, we proudly announced that the company was now administering 8,000 members with total assets under administration of N$ 1.3 billion, cared for by 15 staff members. The Benchmark Retirement Fund at the time had 1,300 members and assets of N$ 60 million. 5 Years later at our current offices at the corner of Feld and Newton streets the company was administering 21,000 members and assets of N$ 6 billion, cared for by 41 staff members. The Benchmark Retirement Fund had grown to 3,700 members with assets of N$ 212 million. After 15 years in the business, we are now administering 35,000 members with assets of 14.5 billion and we employ 59 staff members. The Benchmark Retirement fund has grown to 9,000 members with assets of N$ 1.5 billion. Assuming an average family size of 5, RFS is touching the lives of close to 200,000 people in Namibia.

With these statistics we are fully cognisant of the responsibility this places on us to plough back into the communities that are paying for the services we provide. Over the past year we invested N$ 330,000 through directors’ social responsibility projects and other sponsorships. This represents 0.8% of total revenue and even significantly exceeds the allocation defined in our policy. Our staff is encouraged and supported financially to become members of and involved in industry bodies and in their communities. Sincerity requires personal involvement rather than throwing money at projects but not identifying with these.

• Projekt Lilie (promoting education);
• SKW/RFS annual Youth Soccer tournament;
• Delta Secondary School Windhoek annual Soccer tournament.
• Namcol and Polytechnic bursaries.
• Okanti Foundation (medical support of children with rare diseases)
• K5 Sport sponsorship for the development of u/12 and u/14 indoor hockey players.
• Benchtest newsletter (educating the public in matters affecting their retirement provision).

Starting up a new business is never an easy task and always faces many challenges. Will the business be able to get off the ground, and if so, at such a pace that the business will be able to survive financially yet at the same time in a measured fashion to cope with growth? Will the business be able to attract the right staff at the right time and will it be able to retain its staff? Will the office space accommodate business growth at the right time? Will the business have a sustainable ownership model that will withstand tough times which are bound to happen? This list of questions can be extended significantly and our business too has been facing these challenges.

Start-up businesses usually have to initially take certain business risks generally relating to governance for reasons of affordability, risks such as adequate insurance cover, back-up arrangements for all key resources and disaster recovery arrangements. We have been successful in managing most of the risks and challenges that we faced over the past 15 years however, we have to be extremely grateful about the way in which many developments over the past 15 years, that were totally out of our control, supported and promoted the successful establishment and growth of our business. Today, we measure up well against any medium sized organization in all areas of business governance ranging from extensive business risks insurance cover, dual system of back-up power supply, a disaster recovery site, an internal audit function and independent governance and compliance expertise serving on our board of directors in person of Festus Hangula. Festus, in your absence I nevertheless with to thank you sincerely for your contributions and your dedication at our board level, at this juncture!

First and foremost however, it is you here tonight and those clients and associates who could not make it tonight to whom we have to be grateful for your support over so many years, for your trust in our abilities and for the wonderful spirit in which our staff has been able to serve you and in which our company was able to prosper and grow. Ladies and gentlemen, I would fail my responsibilities if I were not to give special recognition to the support, trust and confidence placed in us by our client trustees and by the two most prominent, independent employee benefits consultancies in Namibia – NMG Consultants and Actuaries and Elite Consulting. Kobus, Marc and Trevor, thank you sincerely for your support! Special mention also needs to be made of our good friends SternLink, with Jankie, Willie and Marios, whom we also owe a huge thank you for the support you have given us over the past 15 years! Without this, we would certainly not have been where we are today! It is great to work with you and I am sure our mutual clients take comfort in a team of independent complementary service providers, each offering unique skills and expertise, in a spirit of mutual trust and cooperation! We look forward to continue these relationships in the interests and for the benefit of our clients and stakeholders. We also say thank you for the good spirit of cooperation, to all insurance companies, asset managers, auditors and actuaries who all have a key role to play in providing our mutual clients with a service package that meets their requirements and needs!

I trust we have been able to meet and exceed your expectations of superior fund management, and I would like to assure you that the shareholders, directors and employees of Retirement Fund Solutions will all personally do everything in their power to ensure that we honour our commitment to you, our clients! We believe that retirement funds are best served by a team of independent but compatible service providers, i.e. administrators, benefit consultants, investment consultants and actuaries.

An important topic that I am sure you all ought to be interested in, is the status of our succession planning. As an owner managed business, ownership continuity is not automatically assured as it is in publicly owned enterprises. It is unfortunately a fact of life that we all grow older and reach the stage where we will no longer be involved. Those ardent readers of our monthly newsletters will have noted that our first employee, Charlotte Drayer, recently reached retirement age. This did not come as a surprise and we have been planning for her succession for quite some time. Fortunately though, Charlotte has merely migrated to a new employment arrangement with the company where she will be focusing on staff training and the development of new products, services and systems, something for which one hardly finds time when one is fully consumed by day-to-day routines. Next one in line is me, reaching retirement age at the end of next year. I will remain actively involved in the business for as long as I am of sound mind (given that you cannot judge your own case) and sound health, but will transfer my management responsibilities to a highly competent, qualified and experience management team.

I would now like to introduce you to our executive management team, most of whom will be familiar to most of you. Can the members of our executive committee now please join me on stage so that our guests can see you:

• Marthinuz Fabianus, deputy managing director and managing director designate;
• Günter Pfeifer, director operations;
• Louis Theron, director support services;
• Kai Friedrich, director operations;
• Frieda Venter, senior manager fund accounting;
• Hannes van Tonder, senior manager fund administration and
• Sharika Skoppelitus, senior manager client services.

Ladies and gentlemen, it should be comforting for you to know that amongst our 59 staff we offer an average of 14 years and an aggregate of over 800 years’ relevant experience, an

average of 5 years’ service with the company, 23 holders of a relevant diploma or certificate, 17 graduates and 11 staff that are members of a relevant professional association, 4 of which being chartered accountants, the profession probably most relevant and appropriate to any financial services organisation. I do not think there is another company in our line of business that can offer you such wealth of knowledge and peace of mind!

Having said this, I must emphasise that our focus is on providing the best service and giving personal, hands-on attention to our clients from our most senior staff to our friendly and helpful reception staff.

No doubt this has been an important reason for us never having lost a client to a competitor yet with whom we had entered into a business relationship, but rather having attracted all our clients from another competitor!

Ladies and gentlemen I thank you sincerely for your patience and wish you an enjoyable and interesting evening and thank you most sincerely for your support over the past years! I hope that you will be able to take something home tonight and I am not referring to anything tangible but rather to that intangible knowledge and insight we hope you will gain from the presentation of our guest speaker Lynn Baker, that no one will ever be able to rob you of!

Thank you! I wish you all an interesting and enjoyable evening